David increases the number of companies in which he holds stocks. a. this raises firm-specific risk, but lowers market risk. what happens to overall risk is unclear. b. this raises market risk, but lowers firm-specific risk. what happens to overall risk is unclear. c. this reduces risk's standard deviation and firm-specific risk. d. this reduces risk's standard deviation and market risk.

The answer is letter c. Standard deviation is applied to the yearly rate of profit of an investment to measure the investment's instability. While specific risk, relates to dangers that are very precise to accompany or small group of businesses. This kind of risk would be the contradictory of a total market risk. Occasionally mentioned to as "diversifiable risk." When you invest in many companies, you become one of the owners of those corporations. What you can make or lose on a stock is recognized as the return on investment, and it hinge on the attainment of the company you've invested in. If those companies do well and creates money from the yields or services it vends, you should assume to benefit from that achievement.

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