With diversification, an investor can
A)reduce risk and increase his return from holding risky assets.
B)reduce risk due to imperfect correlation of returns among risky assets in his portfolio.
C)reduce the market risk associated with holding a portfolio of risky assets.
D)Both a and c.
E)Both b and c.

Question

Quizplus · Accepted Answer

Diversification reduces risk by taking advantage of the imperfect correlation of returns among different assets, which helps to lower the overall risk of the portfolio. However, it does not eliminate market risk, which affects all assets.

With Diversification, an Investor Can