Which of the following statements is true?
A)FIs can reduce profitability by taking advantage of the law of small numbers in their investment decisions.
B)FIs can reduce profitability by taking advantage of the law of large numbers in their investment decisions.
C)FIs can reduce risk by taking advantage of the law of small numbers in their investment decisions.
D)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 the larger the sample size, the more likely the actual outcomes will be close to the expected outcomes. FIs can reduce risk by taking advantage of this law in their investment decisions since they can diversify their portfolios and spread risk across a larger number of investments, reducing the impact of any individual investment on the overall portfolio's performance.

Which of the Following Statements Is True