Question

In: Accounting

If portfolio weights are positive (i.e., you cannot borrow money): 1) Can the standard deviation of a portfolio ever be less than the smallest standard

If portfolio weights are positive (i.e., you cannot borrow money): 1) Can the standard deviation of a portfolio ever be less than the smallest standard deviation of an individual security in the portfolio? 2) Can the standard deviation of a portfolio ever be more than the greatest standard deviation of an individual security in the portfolio?

• 1) yes: 2(yes

• 1) yes: 2) no

• 1) no: 2) no

• 1) no: 2) yes

Solutions

Expert Solution

The correct answer is

A. 1) YES 2) YES

 

Explanation:

it is true that the a standard deviation of portfolio can ever be less than the smallest deviation of an Individual security if the portfolio is well diversified.

And expected return of portfolio can ever be more than the greatest standard deviation of an individual security.

Hence option A is the correct answer.


Hence option A is the correct answer.

Related Solutions

T/F The variance of an asset's return can be less than the standard deviation of that...
T/F The variance of an asset's return can be less than the standard deviation of that asset's return. If an investor owns two stocks, one whose standard deviation is 0.21 and the other whose standard deviation is 0.10, the required return will be higher for the stock with the higher standard deviation. Different investors have different degrees of risk aversion, and the result is that investors with greater risk aversion tend to hold securities with lower risk (and therefore a...
2. You have formed a portfolio of two securities. The portfolio weights, expected return, standard deviation...
2. You have formed a portfolio of two securities. The portfolio weights, expected return, standard deviation (SD) of the individual securities and the correlation between security 1 and 2 are as follows: Security 1: weight = 1.4 , expected return = 15% , standard deviation = 25%, Security 2: weight = -0.4, expected return = 5% , standard deviation = 5% Correlation (1,2) = 0.85 Also, there is a market portfolio and the market portfolio's expected return is E(R)=10% and...
An owner of press is claiming that the standard deviation of the pressure is less than...
An owner of press is claiming that the standard deviation of the pressure is less than 10 pounds-per-square-inch (psi). Suppose you take a random sample of 15 measurements throughout the day of the psi and find the mean is 5 and standard deviation to be 14, using the α=0.05, test the claim by traditional approach.
1) The beta of a portfolio is: a. Less than the weighted beta of the portfolio....
1) The beta of a portfolio is: a. Less than the weighted beta of the portfolio. b. Equal to the weighted beta of the portfolio. c. Less than or equal to the weighted beta of the portfolio. d. Greater than the weighted beta of the portfolio. - 2) An insurance company invests in equity securities as part of its surplus strategy. It uses the historical method to estimate the value at risk of the portfolio. Which is most accurate regarding...
If the minimum required cash is less than the ending cash, a company must borrow money...
If the minimum required cash is less than the ending cash, a company must borrow money True / False The FV of a single amount of $A is equal to A(1+r)n True / False An annuity is a series of equal receipts or payments True / False If you borrow $10,000 at 8% to be repaid in 4 years, your finance charge for the loan will equal $3200 True / False In an annuity due, the future value grow by...
1. Suppose that you are managing a portfolio with a standard deviation of 29% and an...
1. Suppose that you are managing a portfolio with a standard deviation of 29% and an expected return of 22%. The Treasury bill rate is 9%. A client wants to invest 21% of his investment budget in a T-bill money market fund and 79% in your fund. a. What is the expected rate of return on your client's complete portfolio? b. What is the standard deviation for your client's complete portfolio? c. What is the reward-to-volatility (Sharpe) ratio of your...
Can nominal GDP ever be less than real GDP? Please explain.
Can nominal GDP ever be less than real GDP? Please explain.
The standard deviation for a set of stock returns can be calculated as the: A. positive...
The standard deviation for a set of stock returns can be calculated as the: A. positive square root of the average return B. average squared difference between the actual and the average return C. positive square root of the variance D. variance squared  
A company claims to manufacture paper clips with a standard deviation of less than 0.12g. A...
A company claims to manufacture paper clips with a standard deviation of less than 0.12g. A set of 71 paper clips has a sample standard deviation of 0.10 g. Is the claim supported by the test?  
Problem 3 (10). Can nominal GDP ever be less than real GDP?
Problem 3 (10). Can nominal GDP ever be less than real GDP?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT