Answer the Following Two Questions About Portfolio Risk and Return

question 27

Multiple Choice

Answer the following two questions about portfolio risk and return. Assume all weights are positive.
1) Can the return of a portfolio ever be lower than the lowest return on an individual security in the portfolio?
2) Can the variance of a portfolio ever be lower than the lowest variance of an individual security in the portfolio?

• A) 1) yes; 2) yes
• B) 1) yes; 2) no
• C) 1) no; 2) yes
• D) 1) no; 2) no
• E) 1) maybe; 2) no

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Definitions:

Differentiated Product

A product that is distinct from its competitors because of features, branding, quality, or other attributes that make it unique in the eyes of consumers.

Purely Competitive Industry

An industry structure characterized by many small firms producing identical products with no single firm able to influence market prices.

Nonprice Competition

Strategies companies use to attract customers that do not involve changing the price of goods or services, such as advertising and product differentiation.

Demand Curve

A graphical representation showing the relationship between the price of a good and the amount consumers are willing to buy at various prices.