The Standard Deviation of a Portfolio Will Tend to Increase

question 54

Multiple Choice

The standard deviation of a portfolio will tend to increase when

• A)the portfolio concentration in a single cyclical industry increases.
• B)one of two stocks related to the airline industry is replaced with a third stock that is unrelated to any other stock in the portfolio.
• C)a risky asset in the portfolio is replaced with U.S.Treasury bills.
• D)the weights of the various diverse securities become more evenly distributed.
• E)short-term bonds are replaced with Treasury Bills.

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Definitions:

Positively Skewed Distribution

A probability distribution that is asymmetric with a longer tail on the right side, indicating that the mean and median are greater than the mode.

Smallest Observation

The smallest observation, also known as the minimum value, is the lowest value in a set of data points.

3rd Quartile

A value below which 75% of the data points in a dataset fall.

Negatively Skewed Distribution

A probability distribution that is characterized by a long tail on the left side, indicating that the bulk of the values are concentrated to the right.