Which of the Following Statements Is False Regarding Diversification

question 56

Multiple Choice

Which of the following statements is false regarding diversification?

• A) Adding assets will always reduce risk.
• B) Diversification works because some risks are not common to all assets.
• C) Diversification benefits occur most when the assets have a low correlation.
• D) The market is a completely diversified portfolio.
• E) A diversified portfolio always has less risk than the highest risk asset assuming the correlation between the assets is less than one and the standard deviation of the assets is not the same.

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Definitions:

Sales Commission

A payment made to salespersons, often calculated as a percentage of sales revenue, for meeting or exceeding sales targets.

Maintenance

The activities and expenses related to the ongoing upkeep and repair of assets to ensure their functionality and efficiency.

Book Value

The net value of a company's assets minus its liabilities, as recorded on the balance sheet.

Operating Costs

Expenses associated with the day-to-day operations of a business, including rent, utilities, payroll, and raw materials.