As Diversification Increases, the Firm-Specific Risk of a Portfolio Approaches

question 51

Multiple Choice

As diversification increases, the firm-specific risk of a portfolio approaches

• A) 0.
• B) 1.
• C) infinity.
• D) (n − 1) × n.

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Definitions:

Cromwell

Refers to Oliver Cromwell, a key figure in British history who led the parliamentary forces in the English Civil War and later ruled as Lord Protector.

Ireland

An island in the North Atlantic, divided into the Republic of Ireland, an independent nation, and Northern Ireland, part of the United Kingdom.

Puritans

A group of English Protestants in the 16th and 17th centuries who sought to purify the Church of England of Roman Catholic practices, maintaining that the Church of England was only partially reformed.

Anglicans

Members of the Church of England or of any churches in communion with it, which combine Catholic and Protestant traditions.