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

question 104

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:

EPS

Earnings Per Share (EPS) is a financial ratio calculated by dividing the company's net profit by the number of its outstanding shares, indicating how much money a company makes for each share of its stock.

Myron Gordon

An economist best known for his work on dividend policy and stock valuation, including the Gordon Growth Model which relates a company's dividend policy to its stock valuation.

John Lintner

A prominent economist known for his work on dividend policies and the capital asset pricing model (CAPM).

Dividend Payout Ratio

The proportion of earnings paid out as dividends to shareholders, expressed as a percentage of the company’s total earnings.