Which of the following is a feature of the 'Modern Portfolio Theory' developed by Markowitz?
A. Risk is independent of portfolio composition
B. Investors can reduce risk by diversifying across assets whose returns are not perfectly correlated
C. Only the return of individual assets matters
D. Diversification never reduces risk
Answer: Option B
Solution (By JKSSB Mock Tests)
Markowitz’s modern portfolio theory shows that the risk of a portfolio depends on the covariances among asset returns; diversification can therefore lower portfolio variance for a given expected return.
Explanation:
Invisible trade (or invisibles) includes trade in services (such as tourism, software, transportation), income (interest, dividends) and unilateral transfers.
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