Question

The shares of firms with diversified operations​ are________. A. generally negatively affected by​ diversification, because of the increase in risk B. generally not affected by​ diversification, because investors can easily diversify their own portfolios C. generally positively affected by​ diversification, because of the reduction in risk D. generally negatively affected by​ diversification, because of the increase in the required rate of return

Answer 1

Answer:

B. generally not affected by​ diversification, because investors can easily diversify their own portfolios

Explanation:

The reason is that the business itself is diversified and the result is that the company is earning an average return on its business operations. If the investor is managing the portfolio then it means the investor is making its portfolio a risk diversified which include the shares companies that had diversified its operations in the market. So portfolio return doesn't affect the return on an individual company shares because portfolio return is the aggregate return of different number of shares in different companies.

Answer 2

Answer:

The correct answer is letter "B": generally not affected by​ diversification, because investors can easily diversify their own portfolios.

Explanation:

Diversification refers to a strategy portfolio managers follow in an attempt of reducing the risk of having certain assets under their scope. By doing so, if some securities' performance fail, portfolio managers would still have others in play that could offset the losses.

Portfolio management is independent of companies' diversified operations since actually managers are responsible for selecting how to diversify portfolios regardless of how a firm can choose to handle its business.