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All of the following statements regarding diversification are correct EXCEPT? A. diversification is not enhanced by the addition of foreign securities to a portfolio because they are always highly cor...

All of the following statements regarding diversification are correct EXCEPT?

A. diversification is not enhanced by the addition of foreign securities to a portfolio because they are always highly correlated with domestic equity.

B. to minimize interest rate risk, one could diversify within the fixed-income asset category by staggering bond maturity dates.

C. to minimize business risk, one could allocate among a number of asset categories and purchase mutual funds.

D. to reduce liquidity risk, one would keep a sufficient portion of assets in cash or cash equivalent assets.

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Answer #1

A is false: Foreign securities are not closely correlated to domestic equity since they are different markets altogether.

B is True. Interest rate risk can be minimized by adding fixed income assets with staggeting bond maturity dates.

C is true since adding different assets will minimize business risk.

D is true since keeping liquid cash or equivalents will reduce the liquidity risk.

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