The Primary Benefit of Diversification Is That It

question 76

Multiple Choice

The primary benefit of diversification is that it

• A) is convenient.
• B) is cheap.
• C) reduces the exposure of your investments to adverse effects of any individual investment.
• D) increases stock volatility.

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Definitions:

Equity Capital

Funds raised by a company in exchange for shares of ownership in the company.

Component Cost

The rate of return required by investors for each component of a company's capital structure.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk, often represented by the yield on government securities like Treasury bonds.

Retained Earnings

The part of a company's earnings that is not distributed as dividends but is instead held back by the company.