Trade-Off Is Best Described by Which of the Following

question 19

Multiple Choice

trade-off is best described by which of the following:

• A)The relationship between two variables
• B)The sum of two variables
• C)One variable minus the other variable
• D)One variable plus the other variable

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Definitions:

Diversification

A risk management strategy that mixes a wide variety of investments within a portfolio to reduce exposure to any single asset or risk.

Diversifiable Risk

A type of risk that can be reduced or eliminated from a portfolio through investments in a variety of assets, also known as unsystematic risk.

Arbitrage Pricing Model

A theory for asset pricing that takes into account multiple risk factors and the return of an asset, assuming no arbitrage opportunities.

Characteristic Line

In finance, this is a line generated in a statistical plot to describe how the returns of a security relate to the returns of the overall market, used in the Capital Asset Pricing Model (CAPM).