How Can Investors Reduce the Risk Associated with an Investment

question 46

Multiple Choice

How can investors reduce the risk associated with an investment portfolio without having to accept a lower expected return?

• A) Wait until the stock market rises.
• B) Increase the amount of money invested in the portfolio.
• C) Purchase a variety of securities; i.e., diversify.
• D) Purchase stocks that have exceptionally high standard deviations.

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Definitions:

Sociobiology

A science that uses evolutionary theory and genetic inheritance to examine the biological roots of social behavior.

Isolated

Being separated from others, either physically, socially, or emotionally, resulting in limited interaction or communication.

Sociobiology

A field of study that examines social behavior from a biological perspective, focusing on how behavior has been shaped by evolutionary processes.

Evolutionary Theory

A scientific theory which posits that all species of organisms arise and develop through natural selection of small, inherited variations that increase the individual’s ability to compete, survive, and reproduce.