Portfolio Diversification

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The main purpose of diversifying a portfolio is to:

A.Maximize a single stock's return

B.Reduce overall risk by spreading investments

C.Avoid paying taxes

D.Guarantee a fixed return

Combining assets whose returns are not perfectly correlated tends to:

A.Increase total portfolio risk

B.Reduce overall portfolio risk

C.Guarantee losses

D.Have no effect

Holding a mix of stocks, bonds, and cash is an example of:

A.Concentration

B.Asset allocation/diversification

C.Leverage

D.Speculation

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