Choose wisely. There is only one correct answer to each question.
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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.
The chance of experiencing inflation is an example of unsystematic risk.
False. Inflation influences all companies as well as the entire economy. Diversification cannot eliminate the risk of facing inflation. Therefore, it is a systematic risk.
3.
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.
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.
Diversifying across industries can reduce risk.
True. Problems that befall one industry may not befall others.
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.
Financial advisors suggest diversifying because putting your money into different investments is often the best way to avoid losing large sums of money.
True. Diversifying spreads risk among several investments.