Samantha holds stocks in four companies.If she adds stocks of several more companies she will decrease
A)firm specific risk and market risk.
B)firm specific risk but not market risk.
C)market risk but not firm specific risk.
D)neither firm specific nor market risk.

Question

Quizplus · Accepted Answer

By adding stocks of several more different companies, Samantha is increasing her diversification, which will decrease her firm specific risk but not necessarily her market risk as a whole. This is because the market risk is an inherent risk that cannot be diversified away.

Samantha Holds Stocks in Four Companies