Asked by Haseeb Akhtar on Jun 25, 2024
Verified
The object of diversification is:
A) to reduce risk and fluctuations in income.
B) to reduce risk, but not to reduce fluctuations in income.
C) to reduce fluctuations in income, but not to reduce risk.
D) neither to reduce risk, nor to reduce fluctuations in income.
Diversification Objective
A strategy aimed at reducing risk by allocating investments among various financial instruments, industries, or other categories.
Fluctuations In Income
Variations or changes in the amount of money received over a period, which can affect purchasing power and economic stability.
- Gain insight into the critical role and constraints of diversification in mitigating investment risk.
- Investigate strategies for risk reduction, featuring insurance, diversification, and information collection.
Verified Answer
CC
Colton CashawJun 27, 2024
Final Answer :
A
Explanation :
The object of diversification is to reduce risk and fluctuations in income by investing in a variety of assets that are not correlated with each other. By spreading investments across different asset classes, sectors, and geographic regions, investors can reduce the impact of any one investment or market event on their overall portfolio. This can help to smooth out fluctuations in income and minimize the potential for large losses.
Learning Objectives
- Gain insight into the critical role and constraints of diversification in mitigating investment risk.
- Investigate strategies for risk reduction, featuring insurance, diversification, and information collection.
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