The largest reduction in a portfolio's risk is achieved when the number of stocks in the portfolio is increased from
A)80 to 100.
B)40 to 80.
C)10 to 20.
D)1 to 10.

Question

Quizplus · Accepted Answer

The largest reduction in a portfolio's risk occurs when the number of stocks is increased from 1 to 10, due to the significant benefits of diversification at this early stage. Beyond this point, the marginal benefit of adding more stocks diminishes.

The Largest Reduction in a Portfolio's Risk Is Achieved When