Which One of the Following Statements Is Correct Concerning a Portfolio

question 88

Multiple Choice

Which one of the following statements is correct concerning a portfolio of 20 securities with multiple states of the economy when both the securities and the economic states have unequal weights?

• A) Given the unequal weights of both the securities and the economic states, the standard deviation of the portfolio must equal that of the overall market.
• B) The weights of the individual securities have no effect on the expected return of a portfolio when multiple states of the economy are involved.
• C) Changing the probabilities of occurrence for the various economic states will not affect the expected standard deviation of the portfolio.
• D) The standard deviation of the portfolio will be greater than the highest standard deviation of any single security in the portfolio given that the individual securities are well diversified.
• E) Given both the unequal weights of the securities and the economic states, an investor might be able to create a portfolio that has an expected standard deviation of zero.

---

Definitions:

Gases

Substances that exist in a state that fills any container uniformly, without a definite shape or volume, such as oxygen or nitrogen.

Vapors

Gaseous forms of substances which are liquid or solid at room temperature, often produced by evaporation or sublimation.

Prime Mover

The initial mechanical source of motive power. In the context of a hydraulic circuit, the means used to drive the hydraulic pump would be properly the prime mover, although the term is sometimes used to describe the pump itself.

Hydraulic

Hydraulic systems use pressurized fluid to power devices or machinery, transferring energy through the controlled movement and pressure of a liquid, typically oil or water.