Diversification of portfolio can ?
Correct answer: D. reduce idiosyncratic risk
- A. reduce aggregate risk
- B. eliminate all risk
- C. increase the standard deviation of the portfolio's return
- D. reduce idiosyncratic risk
Explanation
Diversification spreads investments across assets whose individual risks are not perfectly correlated, thereby reducing idiosyncratic or unsystematic risk. It cannot eliminate systematic market risk altogether.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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