We Can Reduce Volatility by Investing in Less Than Perfectly

question 86

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.
• E)is the same as the weighted average volatility.

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Definitions:

Hypothesis

A tentative statement about a particular relationship (between objects, people, or groups of people) that can be tested empirically.

Tentative Statement

A provisionary or preliminary statement made with uncertainty, subject to further verification or investigation.

Deductive Presupposition

A logical process where general principles are applied to make specific assumptions or deductions.

Dependent Variable

In research, it's the variable being tested and measured, which is expected to change as a result of manipulations of the independent variable.