Diversification Is

question 32

Multiple Choice

Diversification is:

• A) the process by which risks are shared among many different assets or people.
• B) making a market more liquid by being always ready to buy or sell an asset.
• C) the interest rate at which one would lend if there were no risk of default.
• D) when a borrower fails to pay back a loan according to the agreed-upon terms.

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Definitions:

Tax Shield Approach

A method to reduce taxable income through allowable deductions, reducing overall tax liability.

Tax Rate

The percentage at which an individual or corporation is taxed by the government on its income.

Depreciation

The process of allocating the cost of a tangible asset over its useful life, reflecting its consumption, wear and tear, or obsolescence.

Pro Forma Statement

A financial document that forecasts the future income, expenses, or financial position of a company under hypothetical conditions.