If You Randomly Select Stocks and Add Them to Your

question 144

Multiple Choice

If you randomly select stocks and add them to your portfolio, which of the following statements best describes what you should expect?

• A) Adding more such stocks will increase the portfolio's expected rate of return.
• B) Adding more such stocks will reduce the portfolio's beta coefficient and thus its systematic risk.
• C) Adding more such stocks will have no effect on the portfolio's risk.
• D) Adding more such stocks will reduce the portfolio's market risk but not its unsystematic risk.
• E) Adding more such stocks will reduce the portfolio's unsystematic, or diversifiable, risk.

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Definitions:

Random Sample

A subset of individuals chosen from a larger set where each individual has an equal chance of being selected.

Sampling Process

The method or procedure used to select a subset of individuals from a population to represent the whole.

Nonsampling Error

Refers to the errors that arise during data collection and processing, which are not related to the act of sampling itself, such as measurement errors, processing errors, and coverage errors.

Wording

The choice of words or phrases in a piece of writing or speech.