Which of the following benefits of diversification explains the idea that a firm with many business lines can reduce swings in value because it receives only a small percentage of its revenue from any one of those business lines?
A)Use of internal capital markets
B)Economies of scale and scope
C)Economizing on transaction costs
D)Diversifying shareholder portfolios
E)Identifying undervalued firms

Question

Quizplus · Accepted Answer

Diversifying shareholder portfolios refers to the idea that investors can benefit from owning a diversified portfolio of stocks across different industries and companies, which can reduce their overall risk. This benefit also applies to firms that operate in multiple business lines, as they receive only a small percentage of their revenue from any one of those business lines, reducing their exposure to fluctuations in any single market or industry.

Which of the Following Benefits of Diversification Explains the Idea