Diversification Can Effectively Reduce Risk

question 98

Multiple Choice

Diversification can effectively reduce risk. Once a portfolio is diversified,the type of risk remaining is:

• A) individual security risk.
• B) riskless security risk.
• C) risk related to the market portfolio.
• D) total standard deviations.
• E) None of these.

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Definitions:

Transposition

The error of switching the order of digits in numbers, often leading to inaccuracies in financial or data records.

General Ledger

A comprehensive record of all financial transactions over the life of a company, used to prepare financial statements.

Nominal Account

An accounting ledger account that starts each new accounting period with a zero balance and ends with a closed balance to transfer to a real account.

Retained Earnings

Retained Earnings represent the cumulative amount of net income earned by a company that has not been distributed to shareholders as dividends.