Question

Which of the following is correct? Group of answer choices Risk-averse people will not hold stock. Diversification cannot reduce firm-specific risk. The larger the percentage of stock in a portfolio, the greater the risk, but the greater the average return. Stock prices are determined by fundamental analysis rather than by supply and demand.

Answer 1

Answer: The larger the percentage of stock in a portfolio, the greater the risk, but the greater the average return.

Step-by-step explanation:

Stock in general is more risky than most financial instruments but this risk is accompanied with greater returns. This is why it is generally advisable to diversify stock in a portfolio.

As already mentioned, stock is risky but rewarding. It therefore follows that the more stock is in a portfolio, the risker the portfolio but the greater the average return.