Distinguish between risk that can be reduced through diversification and risk that cannot be reduced through diversification
What will be an ideal response?
Risk that cannot be diversified away affects all investments equally. Examples would include war and natural disasters. Risk that can be reduced through diversification includes changes to the value of an investment that is not perfectly positively correlated with the values of other investments.
You might also like to view...
If airports decide to compensate people who suffer from airplane noise because their homes are under the runway approaches, to whom should they offer monetary payments? The people who
A) actually live in affected residences. B) are bothered by the noise but themselves never travel on commercial airlines. C) both own affected residences and live in them. D) either own affected residences or live in them. E) own affected residences whether or not they live in them.
Trading off capital goods for increasing amounts of consumer goods today will most likely result in
A) increased long-term growth. B) decreased long-term growth. C) decreased prices in consumer goods. D) increases in the quantity of consumer goods.
You have been promised a payment of $100,000 in the future. In which case is the present value of this future payment highest?
a. You receive the payment 2 years from now and the interest rate is 6 percent. b. You receive the payment 2 years from now and the interest rate is 4 percent. c. You receive the payment 3 years from now and the interest rate is 6 percent. d. You receive the payment 3 years from now and the interest rate is 4 percent.
Most economists believe that the infant industry argument for protection, though theoretically justified, often keeps firms from becoming more competitive.
Answer the following statement true (T) or false (F)