FIs can reduce risk by taking advantage of the law of large numbers in their investment decisions.

Question

Quizplus · Accepted Answer

The law of large numbers states that as the number of independent trials increases, the sample mean will approach the true population mean. FIs can reduce risk by diversifying their investments across a large pool of securities, taking advantage of the law of large numbers to mitigate the impact of any single asset on their overall portfolio performance.

FIs Can Reduce Risk by Taking Advantage of the Law