When Assessing the Risk Impact of Adding a New Security

question 1

Multiple Choice

When assessing the risk impact of adding a new security to a portfolio, it is necessary to consider the

• A) new security's variance
• B) variance of every security in the portfolio
• C) weight of every security in the portfolio
• D) average covariance of the new security with every security in the portfolio
• E) all of the above

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Definitions:

Total Costs

The aggregate expense incurred in the production and delivery of goods or services, combining direct, indirect, fixed, and variable costs.

Total Variable Costs

This represents the sum of all costs that vary with the level of output in the production process, such as materials and labor directly involved in making a product.

Average Fixed Costs (AFC)

The fixed costs of production (not varying with output) divided by the quantity of output produced; typically decreases as production increases.

Total Fixed Costs (TFC)

The sum of all costs that remain constant regardless of the level of production or output in the short run.