An increase in the number of corporations in a portfolio from 110 to 120 reduces
A)market risk by more than an increase from 1 to 10.
B)market risk by less than an increase from 1 to 10.
C)firm-specific risk by more than an increase from 1 to 10.
D)firm-specific risk by less than an increase from 1 to 10.

Question

Quizplus · Accepted Answer

Increasing the number of corporations in a portfolio reduces firm-specific risk, but the reduction is less significant as the number of corporations increases. The most significant reduction occurs when increasing from a very small number, such as 1 to 10.

An Increase in the Number of Corporations in a Portfolio