Answer
Diversification is the reduction of risk by replacing a great single risk with many smaller risks. This works in the concepts of stocks and mutual funds. It is better to have a mutual fund rather than a single stock because the incurred risk is significantly lower in mutual funds.
Work Step by Step
This question asks you to understand the concept of mutual funds and how diversifying a portfolio is important in business when you aim to incur smaller risk. Think about stocks and mutual funds when you think of diversification.
