David Increases the Number of Companies in Which He Holds

question 18

Multiple Choice

David increases the number of companies in which he holds stocks.

• A)This reduces risk's standard deviation and firm-specific risk.
• B)This reduces risk's standard deviation and market risk.
• C)This raises market risk,but lowers firm-specific risk.What happens to overall risk is unclear.
• D)This raises firm-specific risk,but lowers market risk.What happens to overall risk is unclear.

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Definitions:

Flexibility Option

An option that provides the holder with the ability to adapt or change an investment based on changing circumstances.

Inputs/Outputs

In economics and business, inputs refer to the resources used in the production process, while outputs are the goods or services produced.

Expected Net Present Value

The anticipated value in today's terms of future cash flows from an investment minus the initial investment cost, considering various possible outcomes.

Industry Standard

The generally accepted requirements, practices, or criteria within a particular industry or sector.