The Principle of Diversification Tells Us That

question 71

Multiple Choice

The principle of diversification tells us that:

• A) concentrating an investment in two or three large stocks will eliminate all of the unsystematic risk.
• B) concentrating an investment in three companies all within the same industry will greatly reduce the systematic risk.
• C) spreading an investment across five diverse companies will not lower the total risk.
• D) spreading an investment across many diverse assets will eliminate all of the systematic risk.
• E) spreading an investment across many diverse assets will eliminate some of the total risk.

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Definitions:

Net Sales

Gross sales less sales returns and allowances less sales discounts.

Cost of Goods Sold

Expenses directly linked to the production of a company's merchandise for sale, including both materials and labor costs.

Departments

Distinct areas or divisions within an organization, each dedicated to a specific function or purpose.

Dollar Gross Profit

The total amount of money a company makes after subtracting the costs directly associated with producing its goods or services.