The Variance of a Portfolio of Risky Securities

question 8

Multiple Choice

The variance of a portfolio of risky securities

• A)is a weighted sum of the securities' variances.
• B)is the sum of the securities' variances.
• C)is the weighted sum of the securities' variances and covariances.
• D)is the sum of the securities' covariances.

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Definitions:

Common Shares

Equity securities that represent ownership in a corporation, giving holders voting rights and a share in the company's profits through dividends.

Debt Investments

Debt investments refer to investments made in bonds or other debt instruments where the investor lends money to an issuer in exchange for periodic interest payments and the return of the principal at maturity.

Guaranteed Investment Certificates

A type of Canadian investment that offers a guaranteed rate of return over a fixed period, typically issued by banks or financial institutions.

Effective-Interest Method

A technique for calculating the amortized cost of a bond and the amount of interest income over each period based on the bond's yield at issuance.