Diversification is the reduction of risk achieved by replacing a single risk with a large number of
A) greater risks.
B) smaller unrelated risks.
C) risk-free investments.
D) risk-free purchases.

Question

Quizplus · Accepted Answer

Diversification is achieved by replacing a single risk with a large number of smaller unrelated risks. This helps to reduce overall risk as losses in one area can be offset by gains in another, resulting in a more stable investment portfolio. Greater risks (choice A) would increase overall risk, while risk-free investments (choice C) and purchases (choice D) do not generate any returns and therefore do not contribute to a diversified portfolio.

Diversification Is the Reduction of Risk Achieved by Replacing a Single