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Which of the following statements is CORRECT? Question 8 options: An investor can eliminate virtually all market risk if he or she holds a very large and well diversified portfolio of stocks. The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio. 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. Once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by even a small amount. An investor can eliminate virtually all diversifiable risk if he or she holds a very large, well-diversified portfolio of stocks.

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Answer:

Once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by even a small amount.

Explanation:

a) are e) are the same just the working is diferent but are true:

A stock’s stand-alone will be higher than a portfolio of more stocks.

A rational investor can eliminate the diversifiable risk by holding the stock in a well-diversified portfolio, and the risk that remains is called market risk So are FALSE

b) higher correlation means the stocks behave in the same direction, so the risk is not eliminate. To decrease the risk it should be a portfolio of lower correlation

FALSE

c) two stock one with risk of 10% and one with risk of 2%

the portfolio of this two shares, assuming same quantity, would be less than 10% making the statment false.

FALSE

d) Once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by even a small amount.

That is correct, because the market risk is there even if the portfolio is compose of all the of the market.

Because It cannot be eliminated through diversification

TRUE

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