Diversification
A)increases the likely fluctuation in a portfolio's return, but reduces market risk.
B)increases the likely fluctuation in a portfolio's return, but reduces firm-specific risk..
C)reduces the likely fluctuation in a portfolio's return and reduces market risk.
D)reduces the likely fluctuation in a portfolio's return and reduces firm-specific risk.

Question

Quizplus · Accepted Answer

Diversification reduces the likely fluctuation in a portfolio's return by spreading investments across various assets, which reduces firm-specific risk but not market risk.