Asked by Emaree Reeves on Jul 18, 2024
Verified
Which one of the following would tend to indicate that a portfolio is being effectively diversified?
A) An increase in the portfolio beta.
B) A decrease in the portfolio beta.
C) An increase in the portfolio rate of return.
D) An increase in the portfolio standard deviation.
E) A decrease in the portfolio standard deviation.
Portfolio Beta
A measure of the sensitivity of a portfolio's returns to the returns of the overall market, indicating the level of market risk associated with the portfolio.
Portfolio Standard Deviation
A measure of the dispersion of returns from a portfolio, indicating the risk involved in holding the portfolio.
- Become familiar with the principles of diversification and how it affects the risk associated with portfolios.
Verified Answer
SH
sydney harringtonJul 22, 2024
Final Answer :
E
Explanation :
A decrease in the portfolio standard deviation indicates effective diversification because it suggests that the portfolio's overall risk is being reduced through the combination of different investments, which is a key goal of diversification.
Learning Objectives
- Become familiar with the principles of diversification and how it affects the risk associated with portfolios.
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