Roger determines that if Aim Corporation has high revenues, then Zest Corporation will have low revenues, and that if Aim Corporation has low revenues, Zest Corporation will have high revenues. He buys stock in both corporations.
A)He has reduced firm-specific risk but not market risk.
B)He has reduced market risk, but not firm-specific risk.
C)He had reduce both firm-specific risk and market risk.
D)He has reduced neither firm-specific risk nor market risk.

Question

Quizplus · Accepted Answer

By investing in both corporations, Roger has diversified his portfolio, reducing firm-specific risk because the performance of one company offsets the other. However, market risk, which affects all companies, is not reduced by this strategy.

Roger Determines That If Aim Corporation Has High Revenues, Then