Explain why diversification is a useful tool to manage risk

Assignment Help Risk Management

Reference no: EM132067305

Question: This question relates to the two types of risk and to diversification.

a) What is specific risk?

b) What is market risk?

c) What is meant by diversification?

d) Explain why diversification is a useful tool to manage specific risk but not market risk. Be sure you answer clearly both why diversification can help manages specific risk as well as why it is not useful in managing market risk.

e) Approximately how many stocks in a portfolio do you need to effectively reduce risk?

Reference no: EM132067305

Questions Cloud

University of southern california for social work : Currently I am going University of Southern California for social work and was wondering if you could help on the assignment and structure (outline)

How liquid is the firm : How liquid is the firm? Will it be able to pay its bills as they come due? How has the firm financed the purchase of its assets? How efficient has the firm's.

How does ptsd affect the mental capabilities of adult female : Does PTSD in Adulthood Increase the Likelihood of Alzheimer's Disease? How does PTSD affect the mental capabilities of adult females?

What is the merger premium per share : Neither firm has any debt. The incremental value of the acquisition is estimated to be $16,500. What is the merger premium per share?

Explain why diversification is a useful tool to manage risk : Explain why diversification is a useful tool to manage specific risk but not market risk. Be sure you answer clearly both why diversification can help manages.

What is the firm aftertax cost of debt : What is the firm's aftertax cost of debt if the tax rate is 20 percent?

Computed based on the future cash flows from assets : A firm value could be computed based on the future cash flows from assets, free cash flows (FCF), that it will generate.

What are the important challenges faced by spotify : What are the biggest most important challenge(s) currently faced by Spotify? Name at least two of its competitors in the market. Name at least one strategy.

Purchasing delta tools : Johnston Mfg. is purchasing Delta Tools for $21.5 million in cash. What is amount of goodwill that will be shown on books of Johnston Mfg. after acquisition?

User Account

All Pages