The Standard Deviation of a Portfolio Will Tend to Increase

question 52

Multiple Choice

The standard deviation of a portfolio will tend to increase when:

• A)the portfolio concentration in a single cyclical industry increases.
• B)one of two stocks related to the airline industry is replaced with a third stock that is unrelated to the airline industry.
• C)a risky asset in the portfolio is replaced with U.S.Treasury bills.
• D)the weights of the various diverse securities become more evenly distributed.
• E)short-term bonds are replaced with Treasury Bills.

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Definitions:

Price

The price one must pay to obtain a good, service, or asset.

Claret

A term often used in Britain to refer to red Bordeaux wine.

Utility Function

A representation of how individual preferences are ranked for different bundles of goods.

Income

The financial gain earned or received by an individual, household, or entity, typically measured on a monthly or yearly basis through wages, dividends, or other earnings.