Which of the Following Statements Is FALSE

question 57

Multiple Choice

Which of the following statements is FALSE?

• A)The volatility declines as the number of stocks in a portfolio grows.
• B)An equally weighted portfolio is a portfolio in which the same amount is invested in each stock.
• C)As the number of stocks in a portfolio grows large,the variance of the portfolio is determined primarily by the average covariance among the stocks.
• D)When combining stocks into a portfolio that puts positive weight on each stock,unless all of the stocks are uncorrelated with the portfolio,the risk of the portfolio will be lower than the weighted average volatility of the individual stocks.

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Definitions:

MVA

Market Value Added, a measure of a company's financial performance representing the difference between the market value of a firm and the capital contributed by investors.

Market Value Added

A calculation that shows the difference between the market value of a company and the capital contributed by investors.

Economic Value Added

A measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit.

Negative Net Cash Flow

A financial situation where a company's cash outflows exceed its cash inflows for a specific period, indicating potential financial trouble.