What Is the Typical Relationship Between the Standard Deviation of an Individual

question 3

Multiple Choice

What is the typical relationship between the standard deviation of an individual common stock and the standard deviation of a diversified portfolio of common stocks?

• A)individual stock's standard deviation will be lower
• B)individual stock's standard deviation will be higher
• C)the standard deviations should be equal
• D)there is no way to predict this relationship

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Definitions:

Maturity Value

The amount to be paid out or the final value of an investment upon its maturity, including the principal and the interest earned.

365-Day Year

A method used in various financial calculations that assumes a year consists of exactly 365 days.

Maturity Value

The total amount payable to the holder of a financial instrument at its maturity date, including principal and any accrued interest.

360-Day Year

An accounting convention that simplifies interest calculation by assuming all months have 30 days.