Which of the Following Statements Is Most Correct Concerning Diversification

question 19

Multiple Choice

Which of the following statements is most correct concerning diversification and risk?

• A) Risk-averse investors often choose companies from different industries for their portfolios because the correlation of returns is less than if all the companies came from the same industry.
• B) Risk-averse investors often select portfolios that include only companies from the same industry group because the familiarity reduces the risk.
• C) Only wealthy investors can diversify their portfolios because a portfolio must contain at least 50 stocks to gain the benefits of diversification.
• D) Proper diversification generally results in the elimination of risk.

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Definitions:

Domain-Relevant Skills

Are the specific abilities and knowledge necessary to perform effectively in a particular field or area of activity.

Intrinsic Task Motivation

Refers to the inner drive or desire to undertake a task for the personal satisfaction and challenge it provides, rather than for external rewards.

Creativity-Relevant Processes

Cognitive and behavioral processes that facilitate creative thinking and ideas, including problem-solving, divergent thinking, and the ability to recognize and exploit novel associations.

Extrinsic Environmental Components

External factors in the environment that can influence the behavior and decision-making processes of individuals or organizations.