## Whats the benefit of diversification when constructing a portfolio

A. From 2008 to 2012, in the aftermath of the financial crisis, the ratio of government debt to GDP in the United States

a. increased markedly.

b. decreased markedly.

c. was stable at a historically high level.

d. was stable at a historically low level.

B. I f the interest rate is zero, then \$100 to be paid in 10 years has a present value that is

a. less than \$100.

b. exactly \$100.

c. more than \$100.

d. indeterminate.

C. I f the interest rate is 10 percent, then the future value in 2 years of \$100 today is

a. \$80.

b. \$83.

c. \$120.

d. \$121.

D. I f the interest rate is 10 percent, then the present value of \$100 to be paid in 2 years is

a. \$80.

b. \$83.

c. \$120. d. \$121.

E. T he ability of insurance to spread risk is limited by

a. risk aversion and moral hazard.

b. risk aversion and adverse selection.

c. moral hazard and adverse selection.

d. risk aversion only.

F. T he benefit of diversification when constructing a portfolio is that it can eliminate

b. risk aversion.

c. firm-specific risk.

d. market risk.

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