Which of the following statements is most correct?
A) Market participants are able to eliminate virtually all market risk if they hold a large diversified portfolio of stocks.
B) Market participants are able to eliminate virtually all company- specific risk if they hold a large diversified portfolio of stocks.
C) It is possible to have a situation where the market risk of a single stock is less than that of a well diversified portfolio.
D) Answers a and c are correct.
E) Answers b and c are correct.

Question

Quizplus · Accepted Answer

Choice B is correct because company-specific risk can be diversified away through holding a large portfolio of stocks, but market risk cannot be fully eliminated. Choice C is correct because it is possible for a stock with lower market risk than a well-diversified portfolio if the stock is less volatile than the market. Therefore, answers b and c are both correct, making answer E the best choice.

Which of the Following Statements Is Most Correct