We Can Reduce Volatility by Investing in Less Than Perfectly

question 13

Multiple Choice

We can reduce volatility by investing in less than perfectly correlated assets through diversification because the expected return of a portfolio is the weighted average of the expected returns of its stocks, but the volatility of a portfolio ________.

• A)is higher than the weighted average volatility
• B)is independent of weights in the stocks
• C)is less than the weighted average volatility
• D)depends on the expected return

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Definitions:

NMR

Nuclear Magnetic Resonance, a spectroscopic technique that exploits the magnetic properties of certain nuclei to determine the structure of compounds.

Molecular Formula

A notation representing the number and type of atoms in a molecule without depicting the bonds (e.g., H2O for water).

IR

Infrared spectroscopy, a technique used to identify and study chemicals through the absorption of infrared radiation, providing insights into molecular vibrations and structures.

NMR

Nuclear Magnetic Resonance, a spectroscopic technique that provides detailed information about the structure, dynamics, and environment of molecules.