Diversification of a Portfolio Can

question 57

Multiple Choice

Diversification of a portfolio can

• A) reduce aggregate risk.
• B) eliminate all risk.
• C) increase the standard deviation of the portfolio's return.
• D) reduce idiosyncratic risk.

---

Definitions:

Heuristic

A problem-solving approach using practical methods or various shortcuts that may not be perfect but are sufficient for reaching an immediate goal.

Algorithm

A precise step-by-step plan for solving a problem or accomplishing a task, often used in computing to develop software or process data.

Verbal Protocols

A research method in which participants verbalize their thoughts as they perform a task, used to gather data on cognitive processes.

Maintenance Rehearsal

A cognitive process that involves repeatedly verbalizing or thinking about a piece of information to keep it in working memory longer.