Which of the Following Statements Best Describes What You Should

question 78

Multiple Choice

Which of the following statements best describes what you should expect to happen if you randomly select stocks and add them to your portfolio?

• A) Adding more such stocks will reduce the portfolio's unsystematic, or diversifiable, risk.
• B) Adding more such stocks will increase the portfolio's expected rate of return.
• C) Adding more such stocks will reduce the portfolio's beta coefficient and thus its systematic risk.
• D) Adding more such stocks will have no effect on the portfolio's risk.

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Definitions:

Bounded Rationality

The concept that when individuals make decisions, their rationality is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision.

Political Acceptability

The degree to which a policy, action, or decision is considered acceptable by political entities and the general public.

Organizational Members

Individuals who are part of a company or institution and contribute to its goals and culture.

Maximization

The choice of the decision alternative with the greatest expected value.