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:

Diversification helps in reducing risk. Patricia has a diversified portfolio with company stocks, bonds, mutual funds, domestic and international stocks. Emma's portfolio is only limited to company stocks. When the company's share - price falls, since Emma has all her eggs in one basket (only company stocks), her portfolio will be affected the most.

Answer:

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