The Primary Purpose of Portfolio Diversification Is To

question 76

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.

---

Definitions:

Corporate Form

A legal structure chosen by a business that treats the business as a separate legal entity capable of holding assets, incurring liabilities, and being taxed.

Financial Markets

Financial markets are platforms or systems that facilitate the buying, selling, and trading of financial securities, commodities, and other fungible items of value among various participants.

Money Markets

The section of the financial market in which financial instruments with high liquidity and very short maturities are traded, serving the need for short-term borrowing or lending.

T-Bills

Short-term government securities issued at a discount from the face value and maturing at par, typically used as a low-risk investment.