When Two Risky Securities That Are Positively Correlated but Not

question 72

Multiple Choice

When two risky securities that are positively correlated but not perfectly correlated are held in a portfolio,

• A) the portfolio standard deviation will be greater than the weighted average of the individual security standard deviations.
• B) the portfolio standard deviation will be less than the weighted average of the individual security standard deviations.
• C) the portfolio standard deviation will be equal to the weighted average of the individual security standard deviations.
• D) the portfolio standard deviation will always be equal to the securities' covariance.

---

Definitions:

Variation

The degree to which data points in a statistical distribution or data set diverge from the average or mean.

Degrees of Freedom

The number of independent values or quantities which can be assigned to a statistical distribution, minus the number of parameters estimated.

Number of Treatments

The total count of distinct experimental conditions applied in research to assess their effects on outcomes.

MSB

Marginal Social Benefit; the additional benefit to society from one more unit of a good or service being produced and consumed.