Which of the following statements is true?
A)The fundamental lesson of modern portfolio theory (MPT) is that by taking advantage of its profitability, an FI can diversify considerable amounts of credit risk as long as the returns on different assets are imperfectly correlated.
B)The fundamental lesson of modern portfolio theory (MPT) is that by taking advantage of its size, an FI can diversify considerable amounts of credit risk as long as the returns on different assets are imperfectly correlated.
C)The fundamental lesson of modern portfolio theory (MPT) is that by taking advantage of its profitability, an FI can diversify considerable amounts of credit risk as long as the returns on different assets are perfectly correlated.
D)The fundamental lesson of modern portfolio theory (MPT) is that by taking advantage of its profitability, an FI can diversify considerable amounts of credit risk as long as the returns on different assets are imperfectly correlated

Question

Quizplus · Accepted Answer

Modern portfolio theory (MPT) emphasizes diversification to reduce risk, and it is the size of the portfolio, not profitability, that allows for diversification when asset returns are imperfectly correlated.

Which of the Following Statements Is True