The principle of diversification tells us that:
A)there is no risk in investing in a portfolio of shares
B)spreading your investment across many assets will eliminate some risk
C)all risk can be eliminated
D)unsystematic risk cannot be reduced
E)systematic risk can always be eliminated by diversification

Question

Quizplus · Accepted Answer

The principle of diversification suggests that spreading your investments across many assets can reduce the overall risk in your portfolio. It cannot eliminate all risk, but it can help to mitigate some of it. Therefore, option B is the correct answer. Option A, C, D, and E are incorrect as they either suggest no risk or complete elimination of risk, which is not possible.

The Principle of Diversification Tells Us That