When defining the principle of diversification, we find that: Select one: a. con

Question

When defining the principle of diversification, we find that:

Select one:

a. concentrating an investment in two or three large stocks will eliminate all of the unsystematic risk

b. concentrating an investment in three companies all within the same industry will greatly reduce the systematic risk

c. spreading an investment across five diverse companies will not lower the total risk

d. spreading an investment across many diverse assets will eliminate all of the systematic risk

e. spreading an investment across many diverse assets will eliminate some of the total risk

Every asset has some form of systematic risk. What item below measures this risk as it relates to a particular asset and then compares this risk to the risk associated with an average risky asset?

Select one:

a. beta

b. reward-to-risk ratio

c. risk ratio

d. standard deviation

e. price-earnings ratio

Explanation / Answer

When defining the principle of diversification, we find that:

e. spreading an investment across many diverse assets will eliminate some of the total risk

Every asset has some form of systematic risk. What item below measures this risk as it relates to a particular asset and then compares this risk to the risk associated with an average risky asset?

a. beta

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