When Two Risky Securities That Are Positively Correlated but Not

question 33

Multiple Choice

When two risky securities that are positively correlated but not perfectly correlated are held in a portfolio,

• A) The portfolio standard deviation will be greater than the weighted average of the individual security standard deviations.
• B) The portfolio standard deviation will be less than the weighted average of the individual security standard deviations.
• C) The portfolio standard deviation will be equal to the weighted average of the individual security standard deviations.
• D) The portfolio standard deviation will always be equal to the securities' covariance.
• E) None of these are true.

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Definitions:

Ridiculous Alternatives

A technique used in problem-solving or therapeutic contexts to spur creativity by considering seemingly absurd or impractical options.

Allostasis

The process by which the body responds to stressors by changing its physiological parameters to maintain homeostasis.

Homeostasis

The ability of a system, especially the body, to maintain internal stability, compensating for environmental changes.

Physiological

Pertaining to the functions and processes of the organs and systems within a living organism.