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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

Solutions

Chapter
Section
Chapter 14, Problem 5CQQ
Textbook Problem
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The benefit of diversification when constructing a portfolio is that it can eliminate

a. speculative bubbles.

b. risk aversion.

c. firm-specific risk.

d. market risk

Expert Solution
To determine
Based ondiversification and its benefit.

Explanation of Solution

Option (c):

The benefits of diversification when constructing a portfolio is that it can eliminate the firm risk. Diversification reduces the risk achieved by a single firm-specific risk replacing with a large number of smaller unrelated risks. Thus, the option “c” is correct.

Option (a):

The benefits of diversification when constructing a portfolio is that it can eliminate the firm risk. It cannot eliminate the speculative bubble. Thus, the option “a” is incorrect...

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Chapter 14 Solutions

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