Question

Which of the following statements concerning the variance are correct? (NOTE: THERE CAN BE MORE THAN ONE CORRECT ANSWER)

a.The larger the variance, the greater the total risk of the investment.

b.If a stock portfolio is well-diversified, then the portfolio variance may be less than the variance of the least risky stock in the portfolio.

c.The larger the variance, the smaller the standard deviation.

d.The larger the variance, the more the actual returns tend to differ from the average return.

e.The variance is the best measure of risk for an asset held in isolation

Answer 1

a. The larger the variance, the greater the total risk of the investment

this statement is true

high variance in a stock is associated with higher risk, along with a higher return

b. If a stock portfolio is well-diversified, then the portfolio variance may be less than the variance of the least risky stock in the portfolio

this statement is not true

If a stock portfolio is well diversified, then the portfolio variance: ... must be equal to or greater than the variance of the least risky stock in the portfolio

c. The larger the variance, the smaller the standard deviation

this statement is not true

larger the variance, the smaller the stantard deviation is increasing

d.The bigger the number the more the actual returns tend to differ from the average return

the statment is true

The bigger the number the more the actual returns tend to differ from the average return

e.The variance is the best measure of risk for an asset held in isolation

The coefficient of variation can measure the risk of any investment in isolation.

this statement is true