One of the Most Important Implications of Our Discussion of Risk

question 51

Multiple Choice

One of the most important implications of our discussion of risk and return is the benefit of ________.

• A) diversification
• B) taking certain risks
• C) pursuing higher returns
• D) reducing risk levels

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Definitions:

Beta

A measurement of a stock's volatility in relation to the overall market; a beta above 1 indicates that the stock's price is more volatile than the market, while a beta below 1 indicates less volatility.

Portfolio

A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including closed-end funds and exchange traded funds (ETFs).

Risky Assets

Financial assets that carry a higher degree of risk of loss, such as stocks, compared to less risky assets like government bonds.

Risk-Free Asset

An investment with zero default risk, typically government bonds, providing a basis for comparing with riskier assets.