Asked by Chaya Kohsuwan on Jul 08, 2024
Verified
Which one of the following statements is correct concerning the standard deviation of a portfolio?
A) The greater the diversification of a portfolio, the greater the standard deviation of that portfolio.
B) The standard deviation of a portfolio can often be lowered by changing the weights of the securities in the portfolio.
C) Standard deviation is used to determine the amount of risk premium that should apply to a portfolio.
D) Standard deviation measures only the systematic risk of a portfolio.
E) The standard deviation of a portfolio is equal to a weighted average of the standard deviations of the individual securities held within the portfolio.
Standard Deviation
A statistical measure of the dispersion or variability within a data set, often used to quantify the risk associated with a variable’s average value.
Diversification
Diversification is an investment strategy that involves spreading investments across various financial instruments, industries, or other categories to reduce risk.
Risk Premium
The extra return above the risk-free rate that investors demand as compensation for the risk of an investment.
- Clarify the significance of standard deviation in determining the comprehensive risk of securities and portfolios.
Verified Answer
Learning Objectives
- Clarify the significance of standard deviation in determining the comprehensive risk of securities and portfolios.
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