The Principle of Diversification Tells Us That

question 76

Multiple Choice

The principle of diversification tells us that:

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

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Definitions:

Color Perception

The process by which the human brain interprets and distinguishes colors, involving the eyes' photoreceptors and neural pathways to process light of different wavelengths as distinct colors.

Motion Parallax

A depth cue that results from the relative movement of objects as observed by a moving observer, allowing the distance of objects to be perceived.

Aerial Perspective

A technique in art and photography that simulates depth by depicting distant objects as paler, less detailed, and usually bluer than nearer objects.

Kinetic Depth Effect

A visual phenomenon where the motion of an object reveals its three-dimensional structure.