Which of the Following Statements Is Most Correct Concerning Diversification

question 73

Multiple Choice

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

• A) Diversification is mainly achieved by the selection of individual securities for each type of asset held in a portfolio.
• B) Diversification is mainly achieved by the asset allocation decision, not the selection of individual securities within each asset category.
• C) Large company stocks and small company stocks together in a portfolio lead to dramatic reductions in risk because their returns are negatively correlated.
• D) Asset allocation is important for pension funds but not for individual investors.

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Definitions:

Work Expected

The anticipated amount of work or output that is expected from a process, project, or employee within a given timeframe.

Employee

An individual who works part-time or full-time under a contract of employment, providing labor to an employer in return for wages or salary.

Management Functions

Activities such as planning, organizing, leading, and controlling that are performed by management to efficiently and effectively coordinate the work of an organization.

Planning

The process of making plans for something, including setting goals and determining the means to achieve them.