Which of the Following Is a Correct Statement About Diversification

question 64

Multiple Choice

Which of the following is a correct statement about diversification?

• A) Most diversification benefits are realized with just 10 stocks.
• B) Diversification is the process of reducing the riskiness associated with individual assets by spreading an investment across numerous assets.
• C) Diversifiable risk is the only risk that matters to a rational investor.
• D) When a stock is combined into a portfolio, the standard deviation of that portfolio remains unchanged.
• E) There is no limit to the amount of risk that can be eliminated through diversification.

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Definitions:

Special Knowledge

Specific expertise or understanding that is not commonly known, often relevant in legal, technical, or professional contexts.

Professional Skills

Professional skills are the expertise and abilities relevant to a specific profession or job, necessary for competent performance and career success.

Standard of Care

The level of competence, caution, and attention expected of an individual in a specific situation, often used in legal contexts concerning negligence.

Duty of Care

The legal obligation to avoid acts or omissions which could foreseeably harm others.