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Which of the following is (are) most correct concerning investment risk? Market risk systematically affects most...

Which of the following is (are) most correct concerning investment risk?

  1. Market risk systematically affects most stocks in the market so it is impossible to diversify away through adding more stock in the portfolio.
  2. Random events as lawsuits, strikes, successful and unsuccessful marketing programs that affect individual firm / industry is example of market risk.
  3. It is possible to form a completely riskless portfolio by adding a very large number of security to the portfolio
  4. Risk reduction effects increase as more and more stocks are added to the portfolio because firm-specific risks comprise of most of the portfolio risk.
  5. All of the above are correct
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Answer #1

Which of the following is (are) most correct concerning investment risk?

(D) Risk reduction effects increase as more and more stocks are added to the portfolio because firm-specific risks comprise of most of the portfolio risk.

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