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Investing in a number of differing assets to eliminate some of the risk is referred to as the...

Question:

Investing in a number of differing assets to eliminate some of the risk is referred to as the principle of:

a. diversification

b. spreading risk

c. risk containment

d. portfolio construction

e. scattering assets

Investment Risk:

Investment Risk is the risk of loss on investments due to changes in value caused by changes in market price. In every investment, there is always a risk of loss.

Answer and Explanation:

Answer: a. diversification

Investing in a number of different assets to eliminate some of the risk is referred to as diversification. It is the process of investing in a number of different assets to spread the risk. This is based on the concept that investments should not be put into one category but spread out to reduce the risk of loss associated with different investment assets.

Explanation of the incorrect answer choices:

b. spreading risk - this is one of the goals of diversification

c. risk containment - is containing the risk in an investment and is a concept in contrast to diversification

d. portfolio construction - is determining where or in which assets the investments should be made.

e. scattering assets - is one ways of diversification


Learn more about this topic:

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Investment Risks: Definition & Types

from Finance 305: Risk Management

Chapter 3 / Lesson 3
5.2K

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