The Standard Deviations of Individual Stocks Are Generally Higher Than

question 31

Multiple Choice

The standard deviations of individual stocks are generally higher than the standard deviation of the market portfolio because the market portfolio:

• A) offers lower returns.
• B) has less systematic risk.
• C) diversifies risk.
• D) has specific risk.

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Definitions:

Stock Dividend

A dividend payment made in the form of additional shares rather than a cash payout, increasing the number of shares owned by shareholders.

Prepaid Insurance

The portion of insurance premiums that has been paid in advance and is recognized as an asset on the balance sheet until the coverage period elapses.

Depreciable Lives

The estimated period over which a tangible asset is expected to be usable by a business, affecting its depreciation calculation.

Insurance Expense

The cost associated with purchasing insurance policies, recognized as an expense by businesses over the period the insurance coverage is applicable.