As the number of stocks in a portfolio rises,
A)both firm-specific risks and market risk fall.
B)firm-specific risks fall;market risk does not.
C)market risk falls;firm-specific risks do not.
D)neither firm-specific risks nor market risk falls.

Question

Quizplus · Accepted Answer

As the number of stocks in a portfolio rises, the firm-specific risks that are unique to each company in the portfolio are diversified, which reduces the overall portfolio's firm-specific risk. However, market risk, which is the systematic risk inherent in the overall stock market, does not decrease with an increase in the number of stocks.

As the Number of Stocks in a Portfolio Rises