Which One of the Following Statements Is Not Correct When

question 61

Multiple Choice

Which one of the following statements is not correct when making decisions?

• A) The sum of the state of nature probabilities must be 1.
• B) Every probability must be greater than or equal to 0.
• C) All probabilities are assumed to be equal.
• D) Probabilities are used to compute expected values.
• E) Perfect information assumes that the state of nature that will actually occur is known.

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Definitions:

Diversifiable Risk

The component of an investment's risk that can be reduced or eliminated through diversification, which involves spreading investments across various assets to reduce exposure to any single risk.

Unique Risk

Unique Risk, also known as unsystematic risk, refers to the risk associated with a specific company or industry that can be reduced through diversification.

Systematic Risk

The portion of investment risk that is inherent in the entire market or market segment, also known as market risk, which cannot be eliminated through diversification.

Market Risk

The potential for investors to experience losses due to factors that affect the overall performance of the financial markets.