The principle of diversification states that spreading an investment over a number of assets will eliminate:
A) All of the risk.
B) All of the systematic risk and part of the unsystematic risk.
C) All of the unsystematic risk and part of the systematic risk.
D) Most of the systematic risk.
E) Most of the unsystematic risk.

Question

Quizplus · Accepted Answer

Diversification primarily reduces unsystematic risk, which is specific to individual assets, but it cannot eliminate systematic risk, which affects the entire market.

The Principle of Diversification States That Spreading an Investment Over