Which Statement About Portfolio Diversification Is Correct

question 67

Multiple Choice

Which statement about portfolio diversification is correct?

• A) Proper diversification can eliminate systematic risk.
• B) The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased.
• C) Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.
• D) Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a decreasing rate.
• E) None of the statements are correct.

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Definitions:

Operating Activities

Business activities directly related to the production, sale, and delivery of a company's products or services, generating the majority of its revenue and expenses.

Cash Dividends

Cash dividends are payments made by a corporation to its shareholders, usually as a distribution of profits.

Free Cash Flow

A measure of financial performance calculated as operating cash flow minus capital expenditures, representing the cash that a company is able to generate after spending the money required to maintain or expand its asset base.

Capital Expenditures

Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.