Which statement about portfolio diversification is CORRECT? i) Typically, as more securities are added to a portfolio, total risk would be expected to decrease at an increasing rate. ii) Proper diversification can reduce or eliminate total risk. iii) The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased. iv) Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.
Which statement about portfolio diversification is CORRECT? i) Typically, as more securities are added to a portfolio, total risk would be expected to decrease at an increasing rate. ii) Proper diversification can reduce or eliminate total risk. iii) The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased. iv) Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Which statement about portfolio diversification is CORRECT?
i) Typically, as more securities are added to a portfolio, total risk would be expected to decrease at an increasing rate.
ii) Proper diversification can reduce or eliminate total risk.
iii) The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased.
iv) Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.
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