Portfolio Construction Allows for a Reduction in Risk of the Portfolio

question 3

Multiple Choice

Portfolio construction allows for a reduction in risk of the portfolio over individual assets:

• A) at a significant reduction in expected return
• B) without a change in expected returns
• C) with additional cost
• D) with a reduction in cost

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Definitions:

Economies of Scale

The cost advantage achieved by businesses when production becomes efficient, as the scale of operation increases leading to a reduction in average costs.

Positive Economic Profits

Earnings that exceed the total costs, including both the explicit and implicit costs of a business.

Expand

To increase the scale, scope, or size of something, often used in the context of business growth or economic expansion.

Increasing-cost Industry

An industry in which production costs increase as output expands, often due to scarce resources or rising input prices.