Asked by Jasmine Trinidad on May 26, 2024

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Portfolio theory as described by Markowitz is most concerned with

A) the elimination of systematic risk.
B) the effect of diversification on portfolio risk.
C) the identification of unsystematic risk.
D) active portfolio management to enhance returns.

Portfolio Theory

A framework for building an investment portfolio that aims to maximize returns by taking a specified amount of market risk.

Markowitz

Refers to Harry Markowitz, an economist known for his pioneering work in modern portfolio theory and investment diversification.

Systematic Risk

The type of risk inherent to the entire market or an entire market segment, also known as market risk, which cannot be eliminated through diversification.

  • Gain an understanding of Markowitz portfolio theory and the concept of an optimal risky portfolio.
  • Comprehend the idea of diversification and its influence on mitigating risk within a portfolio.
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Victoria ShremMay 28, 2024
Final Answer :
B
Explanation :
Portfolio theory, as described by Markowitz, focuses on how diversification can reduce the overall risk of a portfolio. It does not aim to eliminate systematic risk (which is market-wide and cannot be diversified away) or specifically identify unsystematic risk, nor does it primarily concern itself with active management strategies to enhance returns.