Buying a diversified mutual stock fund allows you to
A) completely avoid all types of risk.
B) avoid only random, unsystematic risk.
C) avoid only systematic risk.
D) avoid risk only when all the stock prices are perfectly correlated.

Question

Quizplus · Accepted Answer

Buying a diversified mutual stock fund does not completely eliminate all types of risk, including systematic risk (such as market fluctuations or economic conditions). However, by investing in a range of stocks within the fund, investors can avoid some of the random, unsystematic risk associated with individual stocks. Therefore, the best choice would be B, avoiding only random, unsystematic risk.

Buying a Diversified Mutual Stock Fund Allows You to