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:

Finishing Department

The final phase in a manufacturing process where products undergo final touch-ups, quality assurance checks, and packaging.

Overhead Rate

A measure used to allocate indirect costs to produced goods or services, based on a particular formula or base.

Activity-Based Costing

An accounting technique that assigns costs to units based on the activities needed to produce or deliver them, enhancing costing accuracy.

Overhead Cost

Indirect costs related to the general operation of the company, such as rent, utilities, and management salaries, not directly tied to production or sales.