week 7 Flashcards

1
Q

what is a way for investors to reduce risk?

A

investors can reduce risk by diversification and it is easy for them to diversify by combining the shares of many companies in a portfolio.

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2
Q

a rational risk-averse investor will

A

hold a well-diversified portfolio and that the risk of an asset in a large portfolio depends on the covariance of the returns on the individual asset with the returns on the portfolio.

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