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:

Tacit Knowledge

People’s underlying and implicit beliefs about a task or an event.

Explicit Knowledge

Knowledge that can be articulated, codified, and communicated; it includes facts, information, and skills that a person can convey in a systematic and formal manner.

Spatial Updating

The processes by which individuals continually revise their mental representation of where things in the environment are with respect to their current location.

Demand Characteristics

Demand characteristics refer to the subtle cues or features in an experimental environment that may influence participants' behaviors or responses, thereby affecting the validity of the experiment.