Question

Which of the following statements is FALSE?A. Asset-specific risks can be easily diversified with highly correlated assets in a portfolioB. Asset-specific risks can be easily diversified with numerous assets in a portfolioC. Bearing risk is rewarded with higher expected returnsD. Only market-wide risks, not asset-specific risks, should earn rewards

Answer 1

Answer:

The false statement is letter "D": Only market-wide risks, not asset-specific risks, should earn rewards.

Explanation:

The difference between choosing market-wide risks and asset-specific risks lays in the number of securities the investor decides to trade with. The latter reduces the risk by selecting a reduced number of assets. This is also called unsystematic risk. However, in both cases, the investors may profit from their trades according to their strategy.

Answer 2

Answer:

D. Only market-wide risks, not asset-specific risks, should earn rewards

Explanation:

Assets are investments that people do in order to see their money grow, there are high risks and low risk investments, for example you can invest in government bonds, and they will pay a low fee but you will never loose your money, while you could have portfolios of money invested in companies and you could loose money there, from the options the one that is incorrect is the last one D. Only market-wide risks, not asset-specific risks, should earn rewards, because all investments should earn rewards.