Which of the following statement(s) is/ are correct? Select one or more: Portfolio standard deviation is usually less than the weighted average of the standard deviation of the constituent investments. Portfolio standard deviation is usually greater than the weighted average of the standard deviation of the constituent investments. For perfectly positive correlated investments portfolio standard deviation is equal to the weighted average of the standard deviation of the constituent investment. For perfectly negatively correlated investments portfolio standard deviation is equal to the weighted average of the standard deviation of the constituent investment.

Which of the following statement(s) is/ are correct? Select one or more: Portfolio standard deviation is usually less than the weighted average of the standard deviation of the constituent investments. Portfolio standard deviation is usually greater than the weighted average of the standard deviation of the constituent investments. For perfectly positive correlated investments portfolio standard deviation is equal to the weighted average of the standard deviation of the constituent investment. For perfectly negatively correlated investments portfolio standard deviation is equal to the weighted average of the standard deviation of the constituent investment.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 1Q

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Which of the following statements is correct? Select one: a. Assuming a correlation coefficient of 0 between two assets, the portfolio’s standard deviation will be lower than the weighted average of the individual assets’ standard deviation. b. Assuming a correlation coefficient of +1 between two assets, the portfolio’s standard deviation will be lower than the weighted average of the individual assets’ standard deviation. c. Assuming a correlation coefficient of +1 between two assets, the portfolio’s standard deviation will be the same as the weighted average of the individual assets’ standard deviation. d. Both A and C. Clear my choice
7. Which two of the following options correctly give rules for portfolio theory? A) Portfolio returns are a weighted average of the expected returns on the individual investments. B) Portfolio standard deviation is greater than the weighted average risk of the individual investments, except for perfectly negatively correlated investments. C) Portfolio standard deviation is less than the weighted average risk of the individual investments, except for perfectly positively correlated investments. D) Expected returns are a weighted average of the portfolio return on the group of investments.
When comparing investments that have different means, the measures the relative riskiness of each investment and is a better indicator of risk than the standard deviation.
The expected return of a portfolio is simply the weighted average of the expected returns for the individual assets within the portfolio. Group of answer choices True False
The standard deviation of a portfolio is simply the weighted average of the standard deviations for the individual assets within the portfolio. Group of answer choices True False
a) Consider two assets with the following characteristics: Expected return of asset 1 = 0.15, Standard deviation of asset 1 = 0.10, portion in asset 1 = 0.5 Expected return of asset 2 = 0.20, Standard deviation of asset 2 = 0.20, Compute the expected return and standard deviation of portfolio if correlation coefficient (r1,2) = 0.40 and (r1,2)= -0.60 b) Why do most investors hold diversified portfolio?
True or false: The standard deviation of the portfolio is always equal to the weighted average of the standard deviations of the assets in the portfolio.
Beta is which of the following: A) standard deviation. B) total risk. C) Beta is the relationship which is between an investment's return, and the market return. D) unsystematic risk.
3. What is the relationship of a portfolio standard deviation to the weighted average of the standard deviations of the component assets?
Critically evaluate the importance of the standard deviation factor in comparing investments.
In the context of the Capital Asset Pricing Model (CAPM), the relevant measure of risk is A. standard deviation of returns. B. beta. C. variance of returns. D. unique risk.
explain the assertion that the relationship between the standard deviation on a portfolio an the standard deviations of the assets in the portfolio is not a simple one