Asked by Bryan Velasquez Beltran on Jul 14, 2024
Verified
Which of the following is the best definition of principle of diversification?
A) A theory showing that the expected return on any risky asset is a linear combination of various factors.
B) A risk that affects at most a small number of assets. Also called unique or asset-specific risks.
C) A risk that influences a large number of assets. Also called market risk.
D) Positively sloped straight line displaying the relationship between expected return and beta.
E) Principle stating that spreading an investment across a number of assets eliminates some, but not all, of the risk.
Principle of Diversification
A risk management strategy that mixes a wide variety of investments within a portfolio to minimize the impact of any single asset's performance.
Investment
An investment refers to the allocation of resources, usually money, in expectation of generating an income or profit, involving assets such as stocks, bonds, real estate, or commodities.
Risk
The degree of uncertainty associated with the return on an investment, often linked to the potential for losing some or all of the original investment.
- Familiarize yourself with the diversification principle and its significance in portfolio risk management.
Verified Answer
Learning Objectives
- Familiarize yourself with the diversification principle and its significance in portfolio risk management.
Related questions
Which of the Following Would Have the Lowest Amount of ...
Which One of the Following Would Tend to Indicate That ...
The Primary Purpose of Portfolio Diversification Is To ...
Margaret Has a Portfolio Consisting of a Risk-Free Asset and ...
Which of the Following Is True Concerning Diversification? Assume That ...