The Principle of Diversification Tells Us That

question 81

Multiple Choice

The principle of diversification tells us that

• A)concentrating a portfolio in three companies within the same industry will greatly reduce the overall risk of a portfolio.
• B)concentrating a portfolio in two or three large stocks will eliminate all of a portfolio's risk.
• C)spreading an investment across many diverse assets will eliminate all of a portfolio's risk.
• D)spreading an investment across many diverse assets will lower a portfolio's level of risk.
• E)spreading an investment across five diverse companies will not lower a portfolio's level of risk.

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Definitions:

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The membrane-bound organelle found in eukaryotic cells that contains most of the cell's genetic material.

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Subatomic particles with a negative charge, orbiting the nucleus of an atom.

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A medical imaging technique that helps reveal how tissues and organs are functioning by using a radioactive substance called a tracer.