As the Number of Individual Stocks in a Portfolio Increases

question 58

Multiple Choice

As the number of individual stocks in a portfolio increases, the portfolio standard deviation:

• A)increases at a constant rate.
• B)remains unchanged.
• C)decreases at a constant rate.
• D)decreases at a diminishing rate.
• E)decreases at an increasing rate.

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Definitions:

Capital Allocation Line

A graph showing risk-return trade-offs of different portfolios, with risk measured on the x-axis and expected return on the y-axis, aiming to optimize portfolio allocation.

Standard Deviation

A statistic that measures the dispersion of a dataset relative to its mean, used in finance to measure the volatility of an investment.

Risk-Free Asset

Risk-Free Asset is an investment with no risk of financial loss, often represented by government bonds of stable economies.

Asset Allocation

Allocating a portfolio across broad asset classes such as stocks versus bonds.