Which Type of Risk Can Be Eliminated Through Diversification

question 11

Multiple Choice

Which type of risk can be eliminated through diversification?

• A) total risk
• B) market risk
• C) firm specific risk
• D) none of the above

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Definitions:

Expected Utility

A theory in economics that quantifies how choices are made with uncertainty, aimed at maximizing the satisfaction or benefit.

Risk-neutral

A characteristic of individuals or entities that exhibit indifference between choices with differing levels of risk, focusing solely on expected outcomes.

Expected Utility

A strategy in economics and game theory where individuals choose the option with the highest expected benefit, taking into account all future outcomes.

Risk-neutral

Refers to a mindset or condition where an individual or entity is indifferent to risk when making investment decisions, focusing instead on the potential returns without giving additional weight to the possibility of loss.