If a Stock Portfolio Is Well Diversified,then the Portfolio Variance

question 47

Multiple Choice

If a stock portfolio is well diversified,then the portfolio variance

• A)must be equal to or greater than the variance of the least risky stock in the portfolio.
• B)will be a weighted average of the variances of the individual securities in the portfolio.
• C)will equal the variance of the most volatile stock in the portfolio.
• D)will be an arithmetic average of the variances of the individual securities in the portfolio.
• E)may be less than the variance of the least risky stock in the portfolio.

---

Definitions:

Factor 2

In a variety of contexts, this could refer to the second variable or element in an equation, model, or experimental design that influences outcomes.

Price

The amount of money or compensation commanded by something in a market; the cost at which something is bought or sold.

Factor Price

The payment for the use of a factor of production, such as labor wages, rent for land, or interest for capital.

Production Function

A mathematical representation outlining how inputs are transformed into outputs in a production process.