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An investor who holds just one stock will generally be exposed to more risk than an investor who holds a diversified portfolio of stocks, assuming
An investor who holds just one stock will generally be exposed to more risk than an investor who holds a diversified portfolio of stocks, assuming the stocks are all equally risky. Since the holder of the 1-stock portfolio is exposed to more risk, he or she can expect to earn a higher rate of return to compensate for the greater risk.
Is this true or false? And why?
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