Consider an Equally Weighted Portfolio That Contains 100 Stocks

question 18

Multiple Choice

Consider an equally weighted portfolio that contains 100 stocks.If the average volatility of these stocks is 50% and the average correlation between the stocks is .7,then the volatility of this equally weighted portfolio is closest to:

• A).72.
• B).63.
• C).40.
• D).50.

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Definitions:

Degree Of Operating Leverage

A ratio that measures the sensitivity of a company's operating income to its sales volume, indicating how earnings are affected by sales changes.

Variable Expenses

Costs that change in proportion to the activity of a business, such as raw material costs, sales commissions, or delivery charges.

Fixed Expenses

Expenses that remain constant regardless of variations in the level of production or the volume of sales, like lease payments or wages.

Degree Of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, indicating the impact of fixed costs on earnings.