Portfolio Diversification

question 146

Multiple Choice

Portfolio diversification:

• A) reduces the likelihood that the entire amount invested will be lost.
• B) eliminates all risk of loss.
• C) ensures that investors will receive a positive rate of return.
• D) provides the maximum possible rate of return from an investment portfolio.

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Definitions:

Capital Structure

Capital structure is the mixture of debt and equity that a company uses to finance its operations and growth.

Coupon Rate

The yearly percentage yield from a bond, measured against its nominal value.

Market Price

The current price at which a service or asset can be bought or sold in the market.

CAPM

CAPM - Capital Asset Pricing Model, a formula used to determine the theoretical return on an investment by relating risk and the expected return, often used in the finance sector for pricing risky securities.