One of the most important investment concepts is diversification, and yet it's also one of the...

One of the most important investment concepts is diversification, and yet it's also one of the most overlooked.

a. Explain, in your own words, how investing in a portfolio of securities will reduce risk.

b. Why there are a couple risks diversifiable and a couple risks non-diversifiable?

c. Provide an example of each one.

Expert Solution

A. investment in the portfolio of securities is leading to lowering the overall risk associated with investment because it will eliminate the firm specific risk because when we are investing into a large number of companies, it will mean that the risk associated with the individual company is reduced and eliminated to a large extent so it is always better to scatter the investment into a large group of Company in order to eliminate the risk associated with an systematic risk and it will help the investor to diversify his portfolio.

B. risks are diversifiable because they are related to the company specific factors and Company can control it to a large extent whereas there are many factors which are beyond the control of the company and they can never be controlled so they are non-diversifiable.

C. Risks which are diversifiable risk are related to lack of demand of a product and risk related to employee turnover in a particular company

Risks which are non diversifiable are related to changes in the interest rates in the economy and changes in the political structure in the economy.

jeff jeffy answered 2 years ago

Intangibles can be one of the most important yet most undervalued assets on a company balance...

Intangibles can be one of the most important yet most undervalued assets on a company balance sheet (if recorded at all). Pick a company that has an intangible asset (recorded or not) - tell us what it is, how it's beneficial to the company and how it was developed or purchased.

One of the MOST important concepts to remember when dealing...

One of the MOST important concepts to remember when dealing with a patient who has a stoma is: A: A stoma patient requires very special equipment for emergency ventilations B: You are required to use a pocket mask to ventilate these patients. C: The victim will likely need suctioning prior to ventilations. D: You should use an infant bag-valve-mask device for these patients.

Escherichia coli is one of the most common causes of foodborne illness, yet it is also...

Escherichia coli is one of the most common causes of foodborne illness, yet it is also a common microorganism found within the human gut. What explains this disparity? (5 points) There are several foods and beverages listed in this lab that are created through the actions of microorganisms. Name five of the foods and the specific microorganisms that are used to make each of them. (5 points) Using an online research tool such as the A-Z index on the CDC...

Entropy is one of the most important and most fundamental concepts in thermal dynamics. It is...

Entropy is one of the most important and most fundamental concepts in thermal dynamics. It is also one of the most frequently misunderstood. In this assignment, you will research entropy and write a 3-5 page informative essay describing what entropy is and how it relates to the 2nd law of Thermodynamics. Your description of entropy should be more than a simple definition; the purpose of the paper is for you to demonstrate your own understanding of this concept and how...

Calcium is the most abundant mineral in the body and also one of the most important....

Calcium is the most abundant mineral in the body and also one of the most important. The recommended daily allowance (RDA) of calcium for adults is 800 milligrams (mg). A random sample of 18 people with incomes below the poverty level gives the following daily calcium intakes: 686, 433, 743, 647, 734, 641, 993, 620, 574, 634, 850, 858, 992, 775, 1113, 672, 879, 609 At the 1% significance level, do the data provides sufficient evidence to conclude that the...

The demand for money is one of the most important concepts in the Liquidity Preference Theory...

The demand for money is one of the most important concepts in the Liquidity Preference Theory of Interest. What are the three main components of the demand for money in this idea about how interest rates are determined?

The ability to forecast the upcoming needs is important - but probably the most important, yet...

The ability to forecast the upcoming needs is important - but probably the most important, yet often overlooked need is that of cash. In business it is important that you have the raw materials, labor, capacity, sales, etc. to perform your functions as a business - but if you do not have cash when you need it, then you will have major problem. Many times we do this intuitively - I know every year approximately how much I will owe...

Discuss the concepts of risk and return and diversification. Also, what type of investor would invest...

Discuss the concepts of risk and return and diversification. Also, what type of investor would invest in a high beta stock and a low beta stock?

One of the most important concepts discussed in the text is the moral hazard problem. Even...

One of the most important concepts discussed in the text is the moral hazard problem. Even though this problem cannot be eliminated completely, it can be reduced through various actions such as the Basel Agreements. Submit a summary of these agreements (Basel I, II, and II) using the Web site of the Bank of International Settlements. Briefly explain the moral hazard concept and summarize the three pillars of the Basel Agreements, which are: a. Minimum capital requirement b. Supervisory review...

One of the most important concepts to understand in introductory statistics and in Quantitative Business Analysis...

One of the most important concepts to understand in introductory statistics and in Quantitative Business Analysis is how to find “middle” of a set of data. discusses the importance of finding the “middle” of a set of data.

Question