achieved by diversification or holding a large nu rsified portfolio that is composed of 500 large st tfolio has, the more risk that may be diversified a n of portfolio return is equal to the average of th

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Give typing answer with explanation and conclusion to all parts 

1A.
Which of the following is correct?
1B.
Risk reduction may be achieved by diversification or holding a large number of assets.
S&P 500 is a well diversified portfolio that is composed of 500 large stocks.
The more assets a portfolio has, the more risk that may be diversified away.
The standard deviation of portfolio return is equal to the average of the standard deviations of the assets in the portfolio.
Stock A has a standard deviation of return of 10% and expected return of 6%. Stock B has a standard deviation of 20% and an
expected return of 12%, Portfolio AB is composed of 50% of Stock A and 50% of Stock B. Which of the following s correct?
The standard deviation of Portfolio AB is greater than 15%.
The expected return of Portfolio AB is equal to 99%.
The standard deviation of Portfolio AB is less than 15 %.
The standard deviation of Portfolio AB is 15%.
Transcribed Image Text:1A. Which of the following is correct? 1B. Risk reduction may be achieved by diversification or holding a large number of assets. S&P 500 is a well diversified portfolio that is composed of 500 large stocks. The more assets a portfolio has, the more risk that may be diversified away. The standard deviation of portfolio return is equal to the average of the standard deviations of the assets in the portfolio. Stock A has a standard deviation of return of 10% and expected return of 6%. Stock B has a standard deviation of 20% and an expected return of 12%, Portfolio AB is composed of 50% of Stock A and 50% of Stock B. Which of the following s correct? The standard deviation of Portfolio AB is greater than 15%. The expected return of Portfolio AB is equal to 99%. The standard deviation of Portfolio AB is less than 15 %. The standard deviation of Portfolio AB is 15%.
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