The Primary Purpose of Portfolio Diversification Is To

question 376

Multiple Choice

The primary purpose of portfolio diversification is to:

• A) Increase returns and risks.
• B) Eliminate all risks.
• C) Eliminate asset-specific risk.
• D) Eliminate systematic risk.
• E) Lower both returns and risks.

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Definitions:

Return On Investment

A measure used to evaluate the efficiency of an investment, calculated by dividing the benefit (or return) of an investment by its cost.

Investment Opportunity

An asset or item that presents a potential for profitable returns, as in interest, income, or appreciation in value.

Margin

The difference between the selling price of a product and its cost of production, often expressed as a percentage of sales.

Operating Data

Information related to the daily operations of a business, which can include sales figures, production costs, and inventory levels.