Which of the Following Statements Concerning Measures of Risk Is

question 53

Multiple Choice

Which of the following statements concerning measures of risk is correct?

• A) Combining stocks together in portfolios reduces risk as long as the correlation between the returns on the securities is not perfect .
• B) Even if the correlation between the returns on two different securities is perfectly positive,if the securities are combined in the correct unequal proportions,the resulting portfolio can have less risk than either security held alone.
• C) The coefficient of variation,calculated as the expected return divided by the standard deviation,is a standardized measure of the correlation of risk and return.
• D) The tighter the probability distribution of expected future returns the smaller the risk of a given investment as measured by both the variance and the standard deviation.
• E) Variance is a measure of the variability of returns and because it involves squaring each deviation of the required return from the expected return,it is always larger than its square root,the standard deviation.

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Definitions:

Bushels Demanded

The quantity of a commodity, measured in bushels, that consumers are willing to purchase at a given price.

Bushels Supplied

A measurement reflecting the quantity of a commodity, like grain, provided for sale at a given time.

Market Equilibrium

A state in a market where supply equals demand, and neither buyers nor sellers have the incentive to change prices or quantities.

Demand Curves

Graphical representations showing the relationship between the price of a good or service and the quantity demanded for a given period.