For Diversification to Reduce Risk

question 1

Multiple Choice

For diversification to reduce risk,

• A)the returns on the individual securities should be highly correlated
• B)the prices of the stocks should be stable
• C)the returns on the individual securities should be negatively correlated
• D)one firm should offer dividends and the other should offer capital gains

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Definitions:

Inelastic Supply

A situation where the quantity of goods provided by producers does not significantly change in response to price fluctuations.

Demand for Wheat Bread

Refers to the quantity of wheat bread that consumers are willing to buy at different price levels, during a given period.

Price of Land

The financial value assigned to a piece of land, influenced by its location, size, and use.

Human Capital

The skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or society.