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:

Cognitive Development

The growth and change in intellectual/mental abilities such as thinking, reasoning, and understanding over the lifespan.

Attachment Theory

A psychological theory that describes the dynamics of long-term interpersonal relationships, focusing on how early attachments influence future emotional development.

Social Cognitive Theory

A theory positing that learning occurs in a social context with a dynamic and reciprocal interaction of the person, environment, and behavior.

Teratogen

Any agent or factor that can cause malformation of an embryo or fetus, which includes certain chemicals, drugs, and infections.