The Volatility of Home Depot Share Prices Is 30% and That

question 26

Multiple Choice

The volatility of Home Depot share prices is 30% and that of General Motors shares is 30%.When I hold both stocks in my portfolio and the stocks returns have a correlation of 1,the overall volatility of returns of the portfolio is

• A)more than 30%.
• B)less than 30%.
• C)unchanged at 30%.
• D)cannot say for sure

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Definitions:

Deductive

A logical process in which a conclusion follows necessarily from the stated premises; inference by reasoning from general to specific.

Experimental

Pertaining to a method of research in which variables are manipulated and the effects on other variables are observed; crucial in establishing causality in psychology and other sciences.

Syllogism

A form of logical reasoning where a conclusion is drawn from two given or assumed propositions (premises) with a common term.

Reasoning

The process of thinking about something in a logical way in order to form a conclusion or judgment.