What Is the Typical Relationship Between the Standard Deviation of an Individual

question 71

Multiple Choice

What is the typical relationship between the standard deviation of an individual common stock and the standard deviation of a diversified portfolio of common stocks?

• A) The individual stock's standard deviation will be lower.
• B) The individual stock's standard deviation will be higher.
• C) The standard deviations should be equal.
• D)There is no way to predict this relationship.

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Definitions:

Intrinsic Value

The perceived or calculated value of a company, stock, currency, or product determined through fundamental analysis without reference to its market value.

Cash Proceeds

The amount of money received from a transaction, often from the sale of assets or securities.

Expected Growth Rate

Represents the anticipated annual rate at which an investment, company, or economy will grow over a specified period.

Rate of Return

The gain or loss of an investment over a specific period, expressed as a percentage of the investment's initial cost.