What type of risk is exhibited in section B of the graph? Risk A B # of stocks in portfolio

Finance Dec 27, 2020

Expert Solution

Section B of the graph does not change with the change in the number of stocks. Hence, this means that regardless of any increase in the number of stocks, the risk remains same and cannot be diversified away. Also, the curve A is an asymptote to B which means that when the number of stocks increases it reaches the risk of section B. Hence, B is the systematic risk of the portfolio which doesn't get diversified away.

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