When Investment Returns Are Less Than Perfectly Positively Correlated,the Resulting

question 15

Multiple Choice

When investment returns are less than perfectly positively correlated,the resulting diversification effect means that:

• A) making an investment in two or three large stocks will eliminate all of the unsystematic risk.
• B) making an investment in three companies all within the same industry will greatly reduce the systematic risk.
• C) spreading an investment across five diverse companies will not lower the total risk.
• D) spreading an investment across many diverse assets will eliminate all of the systematic risk.
• E) spreading an investment across many diverse assets will eliminate some of the total risk.
• F) None of the above.

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Definitions:

Tears

A liquid produced by the lacrimal glands for lubrication, nourishment of the cornea, and protection against infection in the eye.

Macrophages

A type of white blood cell that engulfs and digests cellular debris, foreign substances, microbes, and cancer cells in a process called phagocytosis.

Lymph Nodes

Small, bean-shaped structures that produce and store cells that help fight infection and disease.

Bacteria

Microscopic, single-celled organisms found in diverse environments, capable of causing disease or contributing to health.