Question

Portfolio A has only one stock, while Portfolio B consists of all stocks that trade in the market, each held in proportion to its market value. Because of its diversification, Portfolio B will by definition be riskless. True or False?

Answer 1

False

Step-by-step explanation:

Portfolio B will still carry the market's systematic risk (the risk that affects the whole market). Its risk will always be much lower than portfolio A's risk, which includes the market's systematic risk + the stock's risk.

Portfolio B's rate of return will be equal to the market's rate of return.