The reduction of risk by holding large number of securities in portfolio of assets is classified as __________?
Correct answer: A. diversification
- A. diversification
- B. selling ability
- C. reduction ability
- D. director ability
Explanation
Diversification reduces unsystematic risk by spreading investment across many securities, so poor performance by one security has less effect on the whole portfolio. The other options are not recognised risk-reduction concepts.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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