The Addition of a Risky Security to a Fully Diversified

question 79

Multiple Choice

The addition of a risky security to a fully diversified portfolio:

• A)must decrease the portfolio's expected return.
• B)must increase the portfolio beta.
• C)may or may not affect the portfolio beta.
• D)will increase the unsystematic risk of the portfolio.
• E)will have no effect on the portfolio beta or its expected return.

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Definitions:

Posttraumatic Stress Disorder

A mental health disorder triggered by experiencing or witnessing a terrifying event, characterized by flashbacks, nightmares, and severe anxiety.

Diagnostic Criterion

Specific guidelines and characteristics used to make a formal diagnosis of mental disorders or medical conditions.

Significant Distress

A substantial level of suffering or discomfort, either emotional or physical, that notably impacts an individual's daily functioning.

Impairment

A reduction in the ability or function of physical or mental processes, often impacting daily activities or quality of life.