If a Stock Portfolio Is Well Diversified,then the Portfolio Variance

question 47

Multiple Choice

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

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

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Definitions:

Perfectly Inelastic

Describes a situation where the demand for a good does not change in response to a change in price.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, defined as the percentage change in quantity demanded divided by the percentage change in price.

Demand Curve

A diagram displaying the connection between a product or service's price and the amount requested over a specified timeframe.

Price Elasticity

A gauge of the responsiveness of the amount of a product desired to alterations in its cost, reflecting demand's sensitivity to changes in price.