By Incrementally Adding Securities to a Portfolio

question 7

Multiple Choice

By incrementally adding securities to a portfolio

• A) you can reduce portfolio risk only if the new security is uncorrelated with the others in the portfolio.
• B) you raise portfolio risk since having more securities in a portfolio increases the likelihood that one of them will become worthless.
• C) you may reduce portfolio risk, even if new securities are not negatively correlated with others in the portfolio.
• D) you may eliminate all risk with about 15 different stocks in a portfolio.
• E) you reduce risk at an increasing rate.

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