Option A is correct.
Diversification is important in investing because it helps you to balance your risk across different types of investments.
Further Explanation:
Diversification: It is a strategy of risk management that involves investing in a variety of investments like bond, stocks, exchange-traded funds, and treasury bills within a portfolio. It helps in the reduction of the unsystematic risk.
Justification for the correct and incorrect answer:
A.
It helps you to balance your risk across different types of investments: This option is correct.
It helps to spread the risk across different types of investment by building a portfolio that consists of both risky securities like stock and risk-free securities like treasury bills.
B.
It increases your overall risk, which guarantees that you will make more money: This option is incorrect.
It does not increase the risk because the portfolio includes both risky securities like stock and risk-free securities like treasury bills.
C.
It ensures that you only make low-risk investments: This option is incorrect.
It does not involve investing in only low–risk investments. It aims at building a portfolio that includes both risky securities like stock and risk-free securities like treasury bills and also ensures an individual level of risk is maintained.
D.
It helps you gain the highest rate of return despite any risks: This option is incorrect.
The diversification only spread the risk across different types of investment but does not makes it zero.
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Answer details:
Grade: High School
Subject: Business studies
Chapter: Market risk
Keywords: Diversification, to balance your risk across different types of investments, increases your risk, make more money, low-risk investments, gain the highest rate of return, it helps you to balance, it ensures that you only, gain the highest rate of return, low-risk investments, overall risk, which guarantees you more money, market risk.
