As Diversification Increases, the Standard Deviation of a Portfolio Approaches

question 11

Multiple Choice

As diversification increases, the standard deviation of a portfolio approaches

• A)0.
• B)1.
• C)infinity.
• D)the standard deviation of the market portfolio.

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Definitions:

Structured Problem

A problem with a clear definition, known variables, and an identifiable solution process, often easier to analyze and solve systematically.

Financial Year

A 12-month period used for calculating annual financial statements in businesses and other organizations.

Domestic Market

The market that encompasses the supply and demand for goods and services within a particular country, as opposed to international or foreign markets.

Circular Flow Diagram

A visual model that illustrates the economic interactions between different sectors in an economy, showing how money flows through the system.