Question

1.Which of the follwing statements about portfolio risk are true.

a) the riskiness of a portfolio is the weighted average of the imdividual assets' standard deviations

b) two stocks can be individually quite risky but when they are combined to form a portfolio it is possible that they are not risky at all

c) diversification only wants to reduce risk if you portfolios and fix it perfectly positively related stocks (securities)

d) all of the above

2. which of the following statements about risk is false?

a) in a portfolio contacts an assets can be divided into market risk in diversifiable risk

b) stand alone risk refers to the risk and investor would face if he or she held only one asset

c) market was to be eliminated through proper diversification

d) all the above

Answer 1

Statement 1: Which is True?

Answer: B. 2 Stocks can be individually quite risky but when they are combined to form a portfolio, it is possible that they are not risky at all.

Reason: This is possible due to the benefit of Diversification amongst uncorrelated investments which brings down portfolio risk.

Statement 2: Which is False?

Answer: C. Market Risk can be eliminated through proper diversifcation.

Reason: Market Risk, also known as Systematic Risk, is the Risk that an investor takes for investing in the financial markets. It cannot be diversified away and is rewarded by the Market Return.