When Investment Returns Are Less Than Perfectly Positively Correlated,the Resulting

question 26

Multiple Choice

When investment returns are less than perfectly positively correlated,the resulting diversification effect means that:

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

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Definitions:

Temporal Lobes

Regions of the brain involved in processing auditory information and encoding memory.

Cerebrum

The largest part of the brain, responsible for higher brain functions such as thought, action, and emotion.

Synaptic Transmission

The process by which signals are passed between neurons through the synapse, involving the release of neurotransmitters.

Electrical Neural Impulse

The electrical signals transmitted along neurons, facilitating communication between the brain and parts of the body.