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

Question

Quizplus · Accepted Answer

By diversifying his portfolio and adding stocks from several more companies, Russell will decrease firm-specific risk (the risk associated with an individual company) but not market risk (the risk associated with the overall market movements, which affects all companies).

Russell Holds Stocks in Four Companies