Which of the Following Statements Is CORRECT

question 28

Multiple Choice

Which of the following statements is CORRECT?

• A) the higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio.
• B) it is impossible to have a situation where the market risk of a single stock is less than that of a portfolio that includes the stock.
• C) once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by even a small amount.
• D) an investor can eliminate virtually all diversifiable risk if he or she holds a very large, well-diversified portfolio of stocks.
• E) an investor can eliminate virtually all market risk if he or she holds a very large and well-diversified portfolio of stocks.

---

Definitions:

Economies Of Scale

The cost advantages that enterprises obtain due to their scale of operation, typically resulting in cost per unit of output decreasing with increasing scale.

Diminishing Returns

A principle stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output.

Production Function

The relationship between the quantity of inputs a firm uses and the quantity of output it produces.

Inputs

The resources, such as labor, materials, and capital, that are used in the production process to produce goods or services.