Allison recently inherited $750,000 from a distant relative. Her investment adviser representative, John, suggests that since these funds are a windfall, Allison should invest them in several different investments that carry higher exposure to risk than the rest of Allison's portfolio. John informs her that this type of diversification is an important objective for someone with a large portfolio of value and income securities. Allison has always had a buy-and-hold attitude toward investing and her undergraduate degree in finance has reinforced his belief. The most suitable action for John to take under these circumstances would be to:

Allison recently inherited $750,000 from a distant relative. Her investment adviser representative, John, suggests that since these funds are a windfall, Allison should invest them in several different investments that carry higher exposure to risk than the rest of Allison's portfolio. John informs her that this type of diversification is an important objective for someone with a large portfolio of value and income securities. Allison has always had a buy-and-hold attitude toward investing and her undergraduate degree in finance has reinforced his belief. The most suitable action for John to take under these circumstances would be to:

Allison recently inherited $750,000 from a distant relative. Her investment adviser representative, John, suggests that since these funds are a windfall, Allison should invest them in several different investments that carry higher exposure to risk than the rest of Allison's portfolio. John informs her that this type of diversification is an important objective for someone with a large portfolio of value and income securities. Allison has always had a buy-and-hold attitude toward investing and her undergraduate degree in finance has reinforced his belief. The most suitable action for John to take under these circumstances would be to:


A) place the funds in a money market fund.

B) explain the benefits and risks if Allison diversifies her portfolio with the addition of new securities that bear higher risks with returns that are not closely correlated with her present portfolio.

C) purchase investments that closely mirror Allison's current portfolio.

D) purchase long-term investment-grade bonds.



Answer: B) explain the benefits and risks if Allison diversifies her portfolio with the addition of new securities that bear higher risks with returns that are not closely correlated with her present portfolio.


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