Consider a Portfolio with Three Stocks,each with the Same Value

question 72

Multiple Choice

Consider a portfolio with three stocks,each with the same value.The three stocks have standard deviations of 20%,40%,and 90%.The standard deviation of this portfolio is

• A) no greater than 50%.
• B) less than 20%.
• C) exactly 40%.
• D) more than 90%.

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Definitions:

Nominal Interest Rate

The percentage increase in money you pay the lender for the use of the money you borrowed, not adjusted for inflation.

Real Interest Rate

The interest rate adjusted for inflation, reflecting the real cost of borrowing and the real yield on savings.

Purchasing Power

The value of a currency expressed in terms of the quantity of goods or services that one unit of money can buy, often influenced by inflation.

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, often used as an indicator of inflation.