2 of 6 ID: FMTH.RR.SURB.03A Consider this diagram showing unsystematic and systematic risk as a function of the number of assets in a portfolio. a) The diagram shows that as the number of assets in the portfolio increases, the systematic risk of the portfolio remains the same while the unsystematic risk unsystematic risk of the portfolio reduces. However, after 30 assets are added to the portfolio unsystematic risk is not completely eliminated. A small gap remains. b) Theoretically, the gap remaining in the diagram can be completely closed by: proportionately purchasing all of the assets that comprise the market purchasing 30-35 more assets purchasing twice as many assets as are in the market portfolio purchasing sufficient assets to make the standard deviation of the portfolio equal to zero Risk Unsystematic Total risk Systematic 1 5 10 15 20 25 Assets in portfolio 30