Diversifying Among Stocks Based in Countries Outside the United States

question 55

Multiple Choice

Diversifying among stocks based in countries outside the United States

• A) makes your portfolio less vulnerable to conditions in the United States.
• B) is too expensive to use as a means of diversification.
• C) makes your portfolio's returns less volatile because foreign stocks are less volatile than U.S. stocks.
• D) is too risky for individual investors to consider.

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Definitions:

Market Portfolio

A theoretical portfolio that includes all assets available in the market, with each asset weighted by its market capitalization.

Beta

A benchmark for evaluating the volatility or systematic risk of a security or portfolio vis-à-vis the wider market.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk, often represented by the yield on government securities.

Market Portfolio

A theoretical bundle of investments that includes all types of assets available in the market, with each asset weighted by its market capitalization.