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.

Identify the factors affecting bond duration and how they influence bond price volatility.

Understand the difference between active and passive bond portfolio management strategies.

Assess the role of interest-rate risk in bond portfolio management for both active and passive managers.

Comprehend the impact of coupon rate and maturity on bond duration and price sensitivity to interest rate changes.

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