How can diversification reduce idiosyncratic risk but not systematic risk?
What will be an ideal response?
Since the returns on most assets do not move together, holding different assets reduces idiosyncratic risk. However, systematic risk is common to all assets, so holding different assets will not reduce systematic risk.
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An industry is deemed concentrated when ________
A) each firm in that industry has a small market share B) all the firms in that industry charge a price lower than the average cost of production C) most of the firms in that industry earn zero economic profits in the long run D) a few firms account for a large fraction of total sales in that industry
Data shows that United States college students purchase more e-books than German college students. Assuming that all students have identical preferences for e-books and textbooks, what is the likely explanation for this result?
A) Taxes on textbooks are higher in the United States than taxes on textbooks in Germany. B) Taxes on textbooks are lower in the United States than taxes on textbooks in Germany. C) The price of textbooks is cheaper in the United States than textbooks in Germany. D) Both A and C.