When Many Assets Are Included in a Portfolio or Index

question 16

Multiple Choice

When many assets are included in a portfolio or index the risk of the portfolio or index will be:

• A) less than the risk of the securities because the correlations are greater than 1.
• B) equal to the risk of the securities because the correlations are equal to 1.
• C) less than the risk of the securities because the correlations are usually less than 1.
• D) unaffected by the risk of securities because their correlations are less than 1.

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Definitions:

Environmental Uncertainty

A lack of predictability or stability in the external conditions that can affect an organization's performance.

Resource Dependence

The dependency of organizations on environmental inputs, such as capital, raw materials, and human resources as well as outputs such as customers.

Environmental Uncertainty

The unpredictability that an organization faces due to external factors beyond its control, such as economic conditions or technological changes.

Dynamic Environment

A situation or place characterized by constant change, activity, or progress, which can affect individuals, businesses, or ecosystems.