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Portfolio analysis statements

Which one of the following statements is most correct?

a. Market participants are able to eliminate virtually all market risk if they hold a large diversified portfolio of stocks.
b. Market participants are able to eliminate virtually all company-specific risk if they hold a large diversified portfolio of stocks.
c. It is possible to have a situation where the market risk of a single stock is less than that of a well diversified portfolio.
d. Choices a and c are correct.
e. Choices b and c are correct.

Provide which answer is best and why others are not suited.

Solution Preview

Answer: E.
There are two types of risks:
1. The systematic (market) risk of a security is the portion of the security's return variance that is explained by market movements.
2. The unsystematic ...

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This solution looks at portfolio analysis statements.

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