8. Diversification is an investment strategy to A) maximize the return in stock

Question

8. Diversification is an investment strategy to A) maximize the return in stock investment B) minimize the risk in personal finance C) outperform the average stock market return. D) reduce the risk of a given investment portfolio 9. (Figure: Kiwi and Nuts) Kiwi 7.85-8 489y.... 2 1.76 . Us 2 468 10 Nuts (pds) 1.47 3.26 5.05 6.53 Which of the following statements is TRUE for this figure? A) Indifference curve Us provides higher utility than indifference curve Uh B) Bundle A is preferred to bundle B. C) Bundle C is preferred to bundle D D) Bundle D is preferred to bundle d. 10. If the budget constraint shifts northeast or away from the origin, the consumer can afford A) fewer bundles B) the same set of bundles. C) more bundles. D) sometimes fewer bundles, sometimes more bundles, and sometimes the same number of bundles.

Explanation / Answer

1) Diversification is an investment strategy to

Solution: reduce the risk of a given investment portfolio

Explanation: Diversification is allocating the capital in a manner that decreases the exposure to any one specific asset or risk.

2) Which of the following is true for this figure? Indifference curve U1 provides higher utility than indifference curve U2

Solution: Bundle C is preferred to Bundle D

Explanation: Bundle C is preferred to Bundle D because it is on higher Indifference curve thus provides more utility.

3) If the budget constraint shifts northeast away from the origin, the consumer can afford

Solution: more bundles.

Explanation: Higher indifference curve will increase the utility

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