Question 3 Which of the following statements is (are) false regarding the variance of a portfolio of two risky securities? The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance. There is a linear relationship between the securities' coefficient of correlation and the portfolio variance. The degree to which the portfolio variance is reduced depends on the degree of correlation between securities. A and B. A and C.

Question 3 Which of the following statements is (are) false regarding the variance of a portfolio of two risky securities? The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance. There is a linear relationship between the securities' coefficient of correlation and the portfolio variance. The degree to which the portfolio variance is reduced depends on the degree of correlation between securities. A and B. A and C.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 21P

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QUESTION 1 Which of the following statements is true regarding the variance or standard deviation of a portfolio of two risky securities? a. The portfolio variance is independent of the correlation between securities. b. If the two securities are perfectly negatively correlated, the minimum variance portfolio has a standard devaition that is greater than zero. C. The degree to which the portfolio variance is reduced depends on the degree of correlation between securities. d. There is a linear relationship between the securities' coefficient of correlation and the portfolio's standard deviation. e. If the two securities are not correlated, the minimum variance portfolio has a standard devaition that equals zero.
In a two-asset portfolio, a ________ covariance of returns between the two securities will lead to the greatest reduction in the variance of the portfolio. O negative O positive O relative systematic
Assume that security returns are generated by the single-index model, = : αj + BiRM + ei Ri where Ri is the excess return for security i and RM is the market's excess return. The risk-free rate is 4%. Suppose also that there are three securities A, B, and C, characterized by the following data: Security Bi E(Ri) o(ej) A 1.1 11% 24% B 1.3 13 C 1.5 15 a. If om = Security A Security B Security C 10 19 22%, calculate the variance of returns of securities A, B, and C. Variance
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Suppose you have mean-variance utility function with a coefficient of risk Aversion-0, which stocks are preferred to P. E(r) III IP II IV Standard Deviation
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1. Which of the following statements is FALSE? A) When an investment is risky, there are different returns it may earn. B) In finance, the variance of a return is also referred to as its volatility. C) The expected or mean return is calculated as a weighted average of the possible returns, where the weights correspond to the probabilities. D) The variance is a measure of how "spread out" the distribution of the return is.
3. Consider a portfolio where equal investment is made in each of the n stocks. Thus, the proportion invested in each stock is 1/n. Prove that the portfolio variance will be: Portfolio V ariance = LAverage V ariance (1-) Average Covariance 4. By using the equation above, discuss the power and limits to diversification.
The Sharpe ratio Select one: O is computed using idiosyncratic risk only is computed using systematic risk only Ois maximized for the risk-free asset is the highest for a minimum variance portfolio is the same along the capital market line