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:

Implied Authority

Authority that is created not by an explicit oral or written agreement but by implication or inference. In agency law, implied authority of the agent can arise from custom, from the position the agent occupies, or from being reasonably necessary to carry out express authority.

Express Authority

Authority expressly given by one party to another. In agency law, an agent has express authority to act for a principal if both parties agree, orally or in writing, that an agency relationship exists in which the agent has the power (authority) to act in the place of, and on behalf of, the principal.

Exclusive Territory

A designated area or market granted to an individual or entity with the exclusive right to sell or distribute goods or services within it.

Duty of Cooperation

An obligation between parties in a contract to act in good faith and assist each other in fulfilling the contract's terms.