Portfolio diversification:
A) reduces the likelihood that the entire amount invested will be lost.
B) eliminates all risk of loss.
C) ensures that investors will receive a positive rate of return.
D) provides the maximum possible rate of return from an investment portfolio.

Question

Quizplus · Accepted Answer

Portfolio diversification helps to spread the investment across different asset classes, industries, and regions, thereby reducing the risk of losing the entire investment amount due to any single event or market condition. However, it does not eliminate all risk of loss or ensure a positive rate of return. The goal of portfolio diversification is to balance risk and return and optimize the portfolio's risk-adjusted return. It may not provide the maximum possible rate of return, but it aims to achieve a reasonable rate of return while mitigating the risk.

Portfolio Diversification