You Currently Have a Portfolio Comprised of 70 Percent Stocks

question 45

Multiple Choice

You currently have a portfolio comprised of 70 percent stocks and 30 percent bonds.Which one of the following must be true if you change the asset allocation?

• A) The expected return will remain constant.
• B) The revised portfolio will be perfectly negatively correlated with the initial portfolio.
• C) The two portfolios could have significantly different standard deviations.
• D) The portfolio variance will be unaffected.
• E) The portfolio variance will most likely decrease in value.

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Definitions:

Marginal Utility

The added value or satisfaction experienced upon consuming an additional unit of a good or service.

Diamond-Water Paradox

A paradox highlighting the discrepancy between the high value of non-essential items, like diamonds, and the low value of essential items, like water, despite their utility.

Marginal Utility

The enhancement in satisfaction or benefit a consumer achieves by consuming an additional unit of a good or service.