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1.
A fall in price of one security in a diversified portfolio may be offset by an increase in price of another.
True. Problems in one industry may lead people to seek the products or services of another in your portfolio.
2.
How can you greatly reduce unsystematic risk?
Diversify your investments among several companies. Unsystematic risks are specific to a company. You can reduce them greatly by investing in several companies.
3.
A slump in one industry can actually help other industries.
True. In industries that meet similar needs, people may use the products or services of another industry if their preferred one experiences major problems. For instance, if there are problems in the airline industry, transportation needs may be met by driving or using trains.
4.
Risk tolerance is the amount of risk with which you are comfortable.
True. It determines your choices of investments, among many other things.
5.
Why does diversifying across different classes of assets help reduce risk?
Different classes of assets respond differently to economic events. Each type of asset (stocks, bonds, cash, real estate, etc.) has its own risks that may not exist for other types of assets.
6.
An investor can diversify by investing in different regions of the world.
True. One can diversify in many ways. Choosing different regions is one way.
7.
Investment portfolios can be called efficient when they ________.
Contain the best possible mixes of assets for a specific risk level and return. Efficiency is relative to the kind of objective that you are trying to fulfill.