Question

PORTFOLIO RISK 0 15 150 30 45 60 75 90 105 120 135 NUMBER OF STOCK IN THE PORTFOLIO Based on the data presented in the previous graph, which of the following statements are true? Check all that apply. The risk of a portfolio consisting of large-company stocks approaches a limit of 10%. All stocks are equally risky, and adding them to a portfolio will increase the portfolio's risk. Diversifiable risk lies below o = 10%. As the portfolio size increases, its market risk remains constant. A portfolio of 60 stocks has a total risk of 14%.

Answer 1

Statements which are true in the above question are 4th and 5th statement.

Explanation:-

First statement is incorrect because portfolio risk approaches to 10 when we add large number of stocks in portfolio rather than large company portfolio because as portfolio size increases unsystematic risk reduces and risk will ultimately approach to 10

Second statement is incorrect because by adding stocks portfolio risk reduces because of diversification and reduction of unsystematic risk

Third statement is incorrect because below 10% is non diversifiable risk which cannot be further reduced .The risk above 10% is diversifiable risk which has been eliminated.

Fourth statement is correct because as portfolio size increases , unsystematic risk gets reduced and market risk remains constant because market risk is something which cannot be mitigated.

Fifth statement is true as we can see in graph when number of stocks is 60,portfolio risk is just below 15 % .It means it is 14%