Question

Shemar decided to increase the number of stocks in his portfolio. In doing so, Shemar reduced:

a) The market risk, but not the firm-specific risk of his portfolio
b) The firm-specific risk, but not the market risk of his portfolio
c) Both the market risk and the firm-specific risk of his portfolio
d) Neither the market risk nor the firm-specific risk of his portfolio

Answer 1

Shemar reduced both the market risk and the firm-specific risk of his portfolio.

Step-by-step explanation:

When Shemar decided to increase the number of stocks in his portfolio, he actually reduced both the market risk and the firm-specific risk of his portfolio. By diversifying his portfolio and investing across multiple stocks, Shemar spread out the risk associated with any one particular stock. This reduction in risk can help protect against potential losses.