The principle of diversiﬁcation tells us that:
A)concentrating an investment in two or three large shares will eliminate all of your risk.
B)concentrating an investment in three companies all within the same industry will greatly
Reduce your overall risk.
C)spreading an investment across ﬁve diverse companies will not lower your overall risk at
All)
D)spreading an investment across many diverse assets will eliminate all of the risk.
E)spreading an investment across many diverse assets will eliminate some of the risk.

Question

Quizplus · Accepted Answer

The principle of diversification tells us that spreading an investment across many diverse assets will eliminate some of the risk. It is impossible to completely eliminate all risk, but spreading investments across different assets helps to lower the overall risk of a portfolio by reducing the impact of any one asset's performance on the portfolio as a whole. This is because different assets tend to perform differently under different market conditions, so by diversifying, you can benefit from the positive performance of some assets while minimizing the negative impact of others.

The Principle of Diversiﬁcation Tells Us That