If you randomly select stocks and add them to your portfolio, which of the following statements best describes what you should expectσ
A) adding more such stocks will increase the portfolio's expected rate of return.
B) adding more such stocks will reduce the portfolio's beta coefficient and thus its systematic risk.
C) adding more such stocks will have no effect on the portfolio's risk.
D) adding more such stocks will reduce the portfolio's market risk but not its unsystematic risk.
E) adding more such stocks will reduce the portfolio's unsystematic, or diversifiable, risk.

Question

Quizplus · Accepted Answer

By randomly selecting stocks and adding them to your portfolio, you are increasing its diversification, which helps to reduce unsystematic, or diversifiable, risk. However, this does not necessarily reduce market risk or systematic risk, so choices A, B, C, and D are incorrect.

If You Randomly Select Stocks and Add Them to Your