At About What Number of Companies Does the Reduction in Risk

question 30

Essay

At about what number of companies does the reduction in risk from adding stocks of more companies to a portfolio do little to reduce risk?

---

Definitions:

Present Value

The current value of a future sum of money or stream of cash flows, given a specified rate of return.

Compound Interest

The addition of interest to the principal sum of a loan or deposit, where the interest that has been added also earns interest.

Equal Payments

A repayment structure where payments are the same amount each period, as seen in some loans and mortgages.

Annuity Due

An annuity whose payments are made at the beginning of each period.