Which of the Following Statements Best Describes What You Should

question 10

Multiple Choice

Which of the following statements best describes what you should expect 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.
• E) Adding more such stocks will reduce the portfolio's market risk but not its unsystematic risk.

---

Definitions:

Economic Profits

The difference between total revenues and total costs, including both explicit and implicit costs.

Variable Costs

Variable costs are expenses that vary directly with the level of production or output, such as materials and labor.

Fixed Costs

Expenses that remain constant regardless of the level of production or sales volume, such as rent or salaries.

Normal Return

The minimum profit necessary for a company to remain competitive in the market, often covering the cost of capital.