Which of the Following Is Most Likely to Occur as You

question 69

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

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Definitions:

Net Income Determination

The process of calculating the net income of a business by subtracting total expenses from total revenues.

Accrual Accounting

A financial reporting strategy that recognizes income and expenditures at the time they are earned or incurred, without regard to the actual movement of cash.

Operating Cash

refers to the cash that a business generates from its normal operating activities, crucial for maintaining day-to-day operations.

GAAP

Generally Accepted Accounting Principles, which are a set of rules and standards used for financial reporting in the U.S.