A well-diversified portfolio has eliminated most of the variance market risk expected return Firm -specific (unsystematic) risk A portfolio is entirely invested into Buzz's Bauxite Boring equity, which is expected to return 16%, and Zum's Inc. bonds, which are expected to return 8% 60% of the funds are invested in Buzz's and the rest in Zum's. What is the expected return on the portfolio? 6.4% 9.6% 12.8% 24.2% The principle of diversification tells us that: concentrating an investment in two or three large stocks will eliminate all of your risk. spreading an investment across five diverse companies will not lower your overall risk at all. spreading an investment across many diverse assets will eliminate all of the risk spreading an investment across many diverse assets will eliminate some of the risk Standard deviation measures risk total nondiversifiable systematic unsystematic The diversification effect of a portfolio of two stocks increases as the correlation between the stocks rises. decreases as the correlation between the stocks rises. Both increases as the correlation between the stocks declines and decreases as the correlation between the stocks rises increases as the correlation between the stocks declines