Which One of the Following Statements Is Correct Concerning a Portfolio

question 88

Multiple Choice

Which one of the following statements is correct concerning a portfolio of 20 securities with multiple states of the economy when both the securities and the economic states have unequal weights?

• A) Given the unequal weights of both the securities and the economic states, the standard deviation of the portfolio must equal that of the overall market.
• B) The weights of the individual securities have no effect on the expected return of a portfolio when multiple states of the economy are involved.
• C) Changing the probabilities of occurrence for the various economic states will not affect the expected standard deviation of the portfolio.
• D) The standard deviation of the portfolio will be greater than the highest standard deviation of any single security in the portfolio given that the individual securities are well diversified.
• E) Given both the unequal weights of the securities and the economic states, an investor might be able to create a portfolio that has an expected standard deviation of zero.

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Definitions:

Higher Value Use

Utilizing resources or assets in a way that yields the most benefit or profit.

Willing To Pay

The maximum amount a consumer is prepared to spend on a good or service, reflecting their perceived value or utility.

Price Ceilings

Regulatory limits set on the price that can be charged for certain goods or services, intended to protect consumers from excessive rates.

Price Floors

A minimum price, set by law or agreement, below which a commodity cannot legally be sold, often used in agriculture to stabilize market prices.