What is the main effect of diversification in an investment portfolio?
Correct answer: A. It reduces unsystematic risk
- A. It reduces unsystematic risk
- B. It removes market-wide risk
- C. It guarantees a positive return
- D. It raises every asset's income
Explanation
Diversification combines different investments to reduce risk specific to an individual company or asset. It cannot remove systematic market risk or guarantee a positive return.
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Business finance covers capital requirements, sources of funds, budgeting, cash flow, investment decisions and basic financial statements and ratios. Banking includes commercial bank functions, deposits, loans, credit creation, interest and the role of a central bank, including its monetary policy and regulatory functions.
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