Which of the Following Is True Regarding Random Diversification

question 52

Multiple Choice

Which of the following is true regarding random diversification?

• A) Investment characteristics are considered important in random diversification.
• B) Its net benefit eventually disappears as more securities are added.
• C) If done correctly, it can eliminate all risk in a portfolio.
• D) It eventually removes all company specific risk from a portfolio.

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Definitions:

Prisoners' Dilemma

A scenario in game theory where two players, each pursuing their own best interests, fail to achieve the best result for both.

Nash Equilibrium

A concept in game theory where no player can benefit by changing their strategy while the other players' strategies remain unchanged.

Prisoners' Dilemma

A situation in game theory where two individuals acting in their own self-interest pursue a course of action that does not result in the ideal outcome for either party.

Payoff Matrix

A table that shows the potential outcomes or payoffs in a strategic interaction, such as a game, based on the actions of each participant.