Which of the Following Statements Is FALSE

question 5

Multiple Choice

Which of the following statements is FALSE?

• A)The expected return of a portfolio is equal to the weighted average expected return,but the volatility of a portfolio is less than the weighted average volatility.
• B)Each security contributes to the volatility of the portfolio according to its volatility,scaled by its covariance with the portfolio,which adjusts for the fraction of the total risk that is common to the portfolio.
• C)Nearly half of the volatility of individual stocks can be eliminated in a large portfolio as a result of diversification.
• D)The overall variability of the portfolio depends on the total co-movement of the stocks within it.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating a company's fixed versus variable costs.

Variable Costs

Expenses that change in proportion to the level of production or sales, such as raw materials and labor costs.

Operating Leverage

Operating leverage describes the extent to which a company can increase profits by increasing sales, indicating the proportion of fixed costs to variable costs.

Break-Even Point

The level of output or sales at which a company does not make a profit or loss, but all costs are covered.