A Portfolio Is Comprised of Five Risky Stocks

question 119

Multiple Choice

A portfolio is comprised of five risky stocks. The standard deviations of these stocks are 5.6%, 12.8%, 2.3%, 8.9%, and 10.2%. The standard deviation of the portfolio:

• A) Is equal to the arithmetic average of the individual standard deviations.
• B) Must be greater than 2.3%.
• C) Must equal that of the market.
• D) Is equal to the weighted average of the individual standard deviations.
• E) Cannot be determined from the information provided.

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Definitions:

Gaming The System

Manipulating or exploiting rules or regulations to gain an advantage or achieve a specific outcome not intended by the system's design.

Compensation Scheme

The structure of various types of pay and benefits that employees receive for their work, including salary, bonuses, and non-monetary perks.

Monitor Outcomes

The process of tracking and reviewing the results of actions or decisions in order to assess performance, effectiveness, or quality.

Incentive Compensation

A form of payment designed to reward employees for achieving a certain goal, improving performance, or exhibiting a desired behavior.