Suppose that stocks are exposed to systematic risks only so that stock i has the following return structure: Rist = mi + Si,t where mį is the average return, and sit is the systematic risk. When we construct a portfolio including more and more stocks, which of the following would happen? O The portfolio volatility stays unchanged. O The portfolio volatility gradually decreases and eventually converges to a certain positive value. ● The portfolio volatility gradually decreases and eventually converges to zero.

Suppose that stocks are exposed to systematic risks only so that stock i has the following return structure: Rist = mi + Si,t where mį is the average return, and sit is the systematic risk. When we construct a portfolio including more and more stocks, which of the following would happen? O The portfolio volatility stays unchanged. O The portfolio volatility gradually decreases and eventually converges to a certain positive value. ● The portfolio volatility gradually decreases and eventually converges to zero.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 1P

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