The Principle of Diversification Tells Us That

question 101

Multiple Choice

The principle of diversification tells us that:

• A) concentrating an investment in two or three large stocks will eliminate all of your risk.
• B) concentrating an investment in three companies all within the same industry will greatly reduce your overall risk.
• C) spreading an investment across five diverse companies will not lower your overall risk at all.
• D) spreading an investment across many diverse assets will eliminate all of the risk.
• E) spreading an investment across many diverse assets will eliminate some of the risk.

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Definitions:

Implement Decisions

The act of putting into action or executing the resolutions or choices made.

Historical Time Period

A distinct phase in history, characterized by unique events, cultures, and societal norms.

Social Environment

The immediate physical and social setting in which people live or in which something happens or develops, including the cultural, economic, political, and social conditions that influence people's lives.

Information Processing Theory

A theory in psychology that likens the human mind to a computer, focusing on how people process stimuli that they encounter, including how they attend to, perceive, remember, and retrieve information.