The Primary Purpose of Portfolio Diversification Is To

question 91

Multiple Choice

The primary purpose of portfolio diversification is to:

• A) increase returns and risks.
• B) eliminate all risks.
• C) eliminate asset-specific risk.
• D) eliminate systematic risk.
• E) lower both returns and risks.

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Definitions:

Combination

A selection of items or elements without regard to the order in which they are selected.

Indifference Curves

Graphical representations in economics showing different combinations of two goods that provide equal satisfaction and utility to an individual.

Utility

A financial concept that denotes the overall pleasure obtained from using a product or service.

Indifference Curve

A graphical representation showing different combinations of two goods that provide a consumer with the same level of satisfaction or utility.