The Objective of Diversification in an Investment Portfolio Is

question 48

Multiple Choice

The objective of diversification in an investment portfolio is

• A) to make sure you have all your eggs in one basket.
• B) to eliminate non-systematic or company specific risk.
• C) to eliminate systematic portfolio risk.
• D) to hold a lot of strong growth stocks.

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Definitions:

Risky Asset

An investment that carries a significant possibility of losing some or all of its original value.

Delta

In finance, delta refers to the ratio that compares the change in the price of an asset, usually a derivative, to the corresponding change in the price of its underlying asset.

Risky Investment

An investment that carries a higher probability of losing money, alongside the possibility of yielding high returns.