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

question 37

Multiple Choice

If a share portfolio is well diversified,then the portfolio variance:

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

---

Definitions:

Primacy Effect

The tendency to remember information at the beginning of a list better than information in the middle or end.

Recency Effect

The tendency to remember the latest information encountered when recalling a list or series of items.

Fundamental Attribution

The tendency to overemphasize personality traits and underestimate situational factors when explaining others' behavior.

Reciprocity

A mutual exchange of privileges, benefits, or actions between people, where one's action leads to a response of a similar kind.