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In: Finance

Increasing the number of stocks in a portfolio from 10 to 25 would likely: A. increase...

Increasing the number of stocks in a portfolio from 10 to 25 would likely:
  • A. increase the systematic risk of the portfolio
  • B. increase the unsystematic risk of the portfolio
  • C. decrease the variation in returns the investor faces in any one year
  • D. increase the return of the portfolio
  • D.

Solutions

Expert Solution

Systematic risk is risk in the economic system. This risk impacts all stocks. This risk cannot be removed.

Unsystematic risk is risk specific to particular stock.

Increasing the number of stocks in a portfolio decreases the unsystamatic risk of portfolio.

Therefore, Increasing the number of stocks will decrease the variation in returns the investor faces in any one year.

Therefore option C is correct.

jeff jeffy answered 2 years ago
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