1. Which of the following is true?

a. Total risk decreases as the number of stocks in a portfolio increases

b. Diversifiable risk increases as the number of stocks in a portfolio increases

c. Firm specific risk increases as the number of stocks in a portfolio increases

d. Market risk decreases as the number of stocks in a portfolio increases

2. Assume investment X has a standard deviation of 20%, investment Y has a standard deviation of 20%, and X and Y have a correlation of 0.5. If 50% is invested in X and 50% is invested in Y then which is following is true?

a. The portfolio standard deviation will be greater than 20%

b. The portfolio standard deviation will be equal to 20%

c. The portfolio standard deviation will be less than 20%