Portfolio A has but one security, while Portfolio B has 100 securities.Because of diversification effects, we would expect Portfolio B to have the lower risk.However, it is possible for Portfolio A to be less risky.

Question

Quizplus · Accepted Answer

While diversification generally reduces risk, the specific security held in Portfolio A could be less risky than any of the 100 securities held in Portfolio B, potentially resulting in a lower overall risk for Portfolio A.

Portfolio a Has but One Security, While Portfolio B Has