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      Question

      As the number of stocks in a portfolio increases, the

      portfolio’s systematic risk:
      A Can increase or decrease Correct Answer Incorrect Answer
      B Decrease at a decreasing rate Correct Answer Incorrect Answer
      C Decreases at an increasing rate Correct Answer Incorrect Answer
      D Can increase Correct Answer Incorrect Answer
      E None of the above Correct Answer Incorrect Answer

      Solution

      When we add more stocks to a portfolio, unsystematic risk will decrease at a decreasing rate. However, the portfolio’s systematic risk can be increased by adding higher-risk stocks or decreased by adding lower-risky stocks.

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