Which of the following statements best describes what you should expect if you r

Question

Which of the following statements best describes what you should expect if you randomly select stocks and add them to your portfolio?
Answer

Adding more such stocks will reduce the portfolio's unsystematic, or diversifiable, risk.

Adding more such stocks will increase the portfolio's expected rate of return.

Adding more such stocks will reduce the portfolio's beta coefficient and thus its systematic risk.

Adding more such stocks will have no effect on the portfolio's risk.

Adding more such stocks will reduce the portfolio's market risk but not its unsystematic risk.

Explanation / Answer

Adding more stocks will reduce the portfolio's unsystematic, or diversifiable risk.

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