Due to the effect of diversification, the risk associated with the assets of a firm must be less than the risk associated with the financing, or debt and equity that a firm is utilizing for its assets.

Question

Quizplus · Accepted Answer

Diversification helps to minimize the overall risk of a portfolio by investing in a variety of assets, but it does not necessarily reduce the risk associated with financing or debt and equity. The risk associated with financing depends on factors such as interest rates, economic conditions, and market fluctuations, which may not be directly influenced by diversification.

Due to the Effect of Diversification, the Risk Associated with the Assets