Diversification of a Portfolio

question 118

Multiple Choice

Diversification of a portfolio

• A)can eliminate market risk,but it cannot eliminate firm-specific risk.
• B)can eliminate firm-specific risk,but it cannot eliminate market risk.
• C)increases the portfolio's standard deviation.
• D)is not necessary for a person who is risk averse.

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Definitions:

Price Elasticity

An indicator of the responsiveness of the quantity demanded of a product or service to variations in its price.

Demand Curve

A visual chart that illustrates how the price of a product affects the amount of the product that consumers are prepared to purchase.

Monopolistic Competitor

A firm in a market structure where many companies sell products that are similar but not identical, allowing for competition based on quality, price, and marketing.

Pure Monopolist

A market structure in which a single company or entity exclusively controls the entire supply of a particular good or service, without any close substitutes.