An Increase in the Number of Corporations in a Portfolio

question 62

Multiple Choice

An increase in the number of corporations in a portfolio from 110 to 120 reduces

• A)market risk by more than an increase from 1 to 10.
• B)market risk by less than an increase from 1 to 10.
• C)firm-specific risk by more than an increase from 1 to 10.
• D)firm-specific risk by less than an increase from 1 to 10.

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Definitions:

Presale Testing

An assessment process used by companies to evaluate the viability, market potential, or functionality of a product before it is launched to the public.

Random

The lack of pattern or predictability in events, often referring to a selection method where each item has an equal chance of being chosen.

Manic-Depressive Illness

Also known as bipolar disorder, a mental health condition characterized by extreme mood swings, including emotional highs (mania or hypomania) and lows (depression).

Probability

The chance or likelihood that an event will happen, quantified as a number between 0 (impossible) and 1 (certain).