We Can Reduce Volatility by Investing in Less Than Perfectly

question 74

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 shares, but the volatility of a portfolio:

• A)is independent of weights in the shares.
• B)depends on the expected return.
• C)is less than the weighted average volatility.
• D)is higher than the weighted average volatility.

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Definitions:

Intelligence

The capacity to acquire, comprehend, and utilize information, resolve issues, and adjust to novel circumstances.

Neuron Death

The process leading to the loss of nerve cells, which can result from injury, disease, or aging, and significantly impacts brain function.

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Prolonged and excessive intake of alcoholic beverages, leading to health problems and addiction.

General Slowing

A process in which the reductions in the speed of neural transmission lead to a slowing of physical and mental functions.