Which statement about portfolio diversification is correct? a) Proper diversific

Question

Which statement about portfolio diversification is correct?

a) Proper diversification can eliminate systematic risk.

b) The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased.

c) Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.

d) Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a decreasing rate.

a) Proper diversification can eliminate systematic risk.

b) The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased.

c) Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.

d) Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a decreasing rate.

Explanation / Answer

Portfolio diversification has the nature of diminishing risk reduction. Though it has the capability of risk reduction, it decreases the risk at lower rate when portfolio is further and further diversified.

Hence, correct option is “d) Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a decreasing rate.”

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.