Which of the Following Is Most Likely to Occur as You

question 79

Multiple Choice

Which of the following is most likely to occur as you add randomly selected stocks to your portfolio,which currently consists of 3 average stocks?

• A) The diversifiable risk of your portfolio will likely decline,but the expected market risk should not change.
• B) The expected return of your portfolio is likely to decline.
• C) The diversifiable risk will remain the same,but the market risk will likely decline.
• D) Both the diversifiable risk and the market risk of your portfolio are likely to decline.
• E) The total risk of your portfolio should decline,and as a result,the expected rate of return on the portfolio should also decline.

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Definitions:

Industry Structures

The characteristics that define the competitive environment of a market, including the number and size of competitors, product differentiation, and ease of market entry.

Economic Profit

Total revenues minus explicit and implicit costs, representing the return on investment beyond the normal expected return.

Normal Profit

The level of profit that is necessary for a company to remain competitive in the market, often seen as the minimum acceptable return.

Allocative Inefficiency

A situation where resources are not allocated optimally, leading to a loss of economic efficiency.