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:

Debentures

Long-term securities issued by companies to borrow money, often with a fixed rate of interest.

Mortgage Bonds

Bonds secured by real estate or physical equipment that can be sold in case the bond issuer defaults.

Individual Investors

Private individuals who invest their own money in various financial instruments, such as stocks, bonds, or real estate, aiming to achieve personal financial goals.

Par Value

A nominal or face value assigned to a share of stock by the corporation at the time of issuance.