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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

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

To determine

Based ondiversification and its benefit.

Explanation

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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