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      Question

      What will be the impact on the portfolio’s systematic

      risk with the increase in the number of stocks in a portfolio?
      A Increase at a decreasing rate Correct Answer Incorrect Answer
      B Increase at an increasing rate Correct Answer Incorrect Answer
      C Decrease at a decreasing rate Correct Answer Incorrect Answer
      D Decrease at an increasing rate Correct Answer Incorrect Answer
      E Can increase or decrease 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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