Which of the Following Is Correct Concerning Diversification

question 2

Multiple Choice

Which of the following is correct concerning diversification?

• A)It only reduces firm-specific risk,but most of the reduction comes from increasing the number of stocks in a portfolio to well above 30.
• B)It only reduces firm-specific risk;much of the reduction comes from increasing the number of stocks in a portfolio from 1 to 30.
• C)It only reduces market risk,but most of the reduction comes from increasing the number of stocks in a portfolio to well above 30.
• D)None of the above is correct.

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Definitions:

Collectivistic Culture

A societal framework in which individuals prioritize the needs and goals of the group over personal desires or ambitions.

Fundamental Attribution Error

The tendency to overestimate the effect of disposition or personality and underestimate the effect of the situation in explaining social behavior.

Vignettes

Short, descriptive pieces of writing or speech that capture a moment, character, or setting in a detailed way.

Dispositional Attribution

A psychological process whereby individuals attribute behavior to the internal characteristics of the agent, rather than to external factors.