If a Stock Portfolio Is Well Diversified, Then the Portfolio

question 27

Multiple Choice

If a stock portfolio is well diversified, then the portfolio variance:

• A) will equal the variance of the most volatile stock in the portfolio.
• B) may be less than the variance of the least risky stock in the portfolio.
• C) must be equal to or greater than the variance of the least risky stock in the portfolio.
• D) will be a weighted average of the variances of the individual securities in the portfolio.
• E) will be an arithmetic average of the variances of the individual securities in the portfolio.

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Definitions:

Short-Run Supply Curve

A graphical representation showing the quantity of goods a firm is willing and able to supply at different prices in the short term.

MC Curve

Short for Marginal Cost Curve, it graphs the cost to produce one additional unit of a good or service against the quantity produced.

Purely Competitive

Refers to a market structure characterized by a large number of small firms, homogeneous products, and free entry and exit, leading to price-taking behavior.

Produce

To create or manufacture goods and products for consumer use.