Last year Marcelino graduated from high school and received several thousand dollars from an uncle as a graduation gift.?Marcelino, now in his first year of?college, just heard of a guy in his dorm that invested in an oil exploration company and made a huge profit in a few months. Marcelino likes the idea of making some money fast and is considering investing his graduation gift money in a similar stock.?Marcelino's roommate,?Luc, just finished a personal finance course and is concerned that Marcelino may be getting himself into trouble. Luc knows that Marcelino likes to shop?online, has run up a fairly large credit card?bill, and has trouble balancing his budget on a monthly basis. In?addition, Marcelino really?doesn't

know much about investing or how people actually?"make money?investing." Luc has asked you to help him work through the following questions so that he can talk to Marcelino about his investment plans.

7. By investing in two unrelated domestic stocks rather than in just one stock, would Marcelino increase or decrease his systematic risk exposure? What about his unsystematic risk exposure? (Select from the drop-down menus.) risk cannot be eliminated through diversification. Holding one stock does not increase risk; however, owning only one stock does increase risk. In other words, if a company-unique problem occurs, there is insufficient diversification to reduce the risk of loss. By investing in two unrelated stocks, Marcelino should reduce the volatility of his portfolio due to "business specific" risk. B. Luc has urged Marcelino to invest for the long term using a diversified approach. Marcelino is skeptical. Explain why Luc is probably correct. (Select all the choices that apply.) A. Luc is correct. Marcelino should avoid investing in only one stock. He should focus on accumulating a portfolio of stocks in different industries. B. By using a diversified approach, Marcelino will reduce systematic risk by allowing bad returns from a few stocks to be countered by higher returns in other stocks. C. By using a diversified approach, Marcelino will reduce unsystematic risk by allowing bad returns from a few stocks to be countered by higher returns in other stocks. [D. Ultimately, this approach will reduce total portfolio variation (risk) without negatively affecting expected returns