In a Portfolio, Risk Is Evaluated in a Different Way

question 64

Multiple Choice

In a portfolio, risk is evaluated in a different way than with an individual project. In evaluating portfolio, risk we

• A)need to consider the impact of a given project on the overall risk of the firm.
• B)recognize that a risky investment may create a portfolio with less risk.
• C)need to consider how the returns of the projects in the portfolio are correlated.
• D)All of these options are true.

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Definitions:

Cost Function

A mathematical relationship that describes how production costs change with variations in output level.

Reaction Curves

Graphs showing how one firm’s optimal output decision responds to quantities of output by competing firms in a market.

Simultaneous Equations

A set of equations containing multiple variables that are all solved together.

Cross-License

An agreement between two or more parties to grant mutual rights to their respective intellectual property.