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:

Supernal Growth

refers to extraordinary or exceptional growth in a business or economic sector.

Dividend

A share of a firm's income allocated to its stockholders, often in cash or extra shares.

Perceivable Future

A concept referring to events or conditions that can reasonably be foreseen or predicted.

Quarterly Dividend

A payment made by a corporation to its shareholders, usually as a distribution of profits, every three months.