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The benefit of diversification is: Select one: A
The benefit of diversification is: Select one: A. made possible because the returns from risky assets move perfectly in synch B. the increase in standard deviation that occurs when we combine more than one risky assets in a portfolio C. is significant when we add 10 to 25 assets to a portfolio but diminishes as we add more risky assets O D. all of the above are correct
Expert Solution
According to me Option No.B is correct but it is not the benefit of diversification, because diversification benefit exist when a portfolio Standard deviation can be reduced without reducing expected return.
Other options like the return from risky assets move in perfectly in synch is wrong because the return cannot be same from different assets.
Option No. C , It can be the benefit of diversification but the sentance is incomplete.
It should be-- is significant when we add 10 to 25 assets to a portfolio and the risk or the standard deviation deminishes as we add more risky assets.
A diversification benefit exists when a portfolios standard deviation can be reduced without reducing the expected return.
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