The addition of a risky security to a fully diversified portfolio:
A)must decrease the portfolio's expected return.
B)must increase the portfolio beta.
C)may or may not affect the portfolio beta.
D)will increase the unsystematic risk of the portfolio.
E)will have no effect on the portfolio beta or its expected return.

Question

Quizplus · Accepted Answer

Adding a risky security to a fully diversified portfolio may or may not affect the portfolio beta, depending on the correlation of the new security with the existing portfolio.

The Addition of a Risky Security to a Fully Diversified