Question

patricia and emma work together. they both have the same amount of money invested in their portfolios. their investments are listed in the table. two months ago, the company patricia and emma work for started incurring losses, and now its share price has started falling. which statement is correct given the scenario?

patricias investments	company stocks, bonds, mutual funds, domestic stocks, and international stocks
emmas investments	company stocks

a. patricias portfolio will be affected the most because she has too many assets in her portfolio.
b. emmas portfolio will be affected the most because it is limited to company stock.
c. neither portfolio will be significantly affected because both have a good mix of assets
d. both portfolios will be equally affected because both have an equal amount of company stock

Explanation:

Step1: Analyze portfolio diversification

Patricia has a diversified portfolio with company stocks, bonds, mutual - funds, domestic stocks and international stocks. Emma has a non - diversified portfolio with only company stocks.

Step2: Consider the impact of company stock price decline

When the company's share price is falling, a portfolio with only company stock (Emma's) will be more affected as it has no other assets to offset the losses. A diversified portfolio (Patricia's) can mitigate losses to some extent.

Answer:

B. Emma's portfolio will be affected the most because it is limited to company stock.