When Many Assets Are Included in a Portfolio or Index

question 16

Multiple Choice

When many assets are included in a portfolio or index the risk of the portfolio or index will be:

• A) less than the risk of the securities because the correlations are greater than 1.
• B) equal to the risk of the securities because the correlations are equal to 1.
• C) less than the risk of the securities because the correlations are usually less than 1.
• D) unaffected by the risk of securities because their correlations are less than 1.

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Definitions:

Monopolistic Competitor

A market structure where many companies sell products that are similar but not identical, allowing for some degree of market power.

Short Run

The length of time it takes all fixed costs to become variable costs.

Long Run

The long run is a period in economics wherein all inputs can be adjusted, and there are no fixed costs, allowing full operational flexibility.

Price Discrimination

A pricing strategy where identical or substantially similar goods or services are sold at different prices by the same provider.