The Standard Deviation of Returns on Warchester Stock Is 20

question 52

True/False

The standard deviation of returns on Warchester stock is 20% and on Shoesbury stock it is 16%. The coefficient of correlation between the stocks is .75. The standard deviation of any portfolio combining the two stocks will be less than 20%.

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Definitions:

Income Elasticity

A measure of how much the demand for a good will change in response to a change in consumers' income.

Inferior Good

An inferior good is a type of good whose demand decreases when consumer income rises, in contrast to normal goods, whose demand increases with rising incomes.

Shoes

Footwear items designed to protect and comfort the human foot while offering various styles and functions.

Income Elasticity

Measures how the quantity demanded of a good changes in response to a change in consumers' income.