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:

Guaranty Contract

A legal agreement wherein a guarantor agrees to fulfill the obligations of a debtor to a lender, should the debtor fail to do so.

Creditor

An entity (person or institution) that lends money or extends credit to another entity, with the expectation of being repaid in the future.

Debtor's Debt

Debtor's debt refers to the monetary obligation owed by a debtor to a creditor, resulting from a loan or another credit agreement.

Real Property

Land and anything permanently attached to it, such as buildings and structures.