Diversification allows investors to reduce the risk of their portfolio without necessarily reducing the expected return. By investing in a variety of assets, investors can mitigate the impact of poor performance in any single investment.

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Diversification

Question 26

Multiple Choice

Diversification:

A) permits asset holders to reduce the risk of their holdings by reducing the expected return.
B) does not permit asset holders to reduce the risk of their holdings without reducing their returns.
C) permits asset holders to reduce the risk of their holdings without reducing the expected return.
D) permits asset holders to increase their expected returns but only at the cost of increasing risk.

Correct Answer: