Product was successfully added to your shopping cart.
The standard deviation of a portfolio quizlet. The portfolio's beta is less than 1.
The standard deviation of a portfolio quizlet. Find step-by-step solutions and your answer to the following textbook question: What is the standard deviation of a fully diversified portfolio of such stocks?. 47% C. The standard deviation of a portfolio quantifies the difference between the investment returns and the probability distribution's mean. Study with Quizlet and memorize flashcards containing terms like True or false: The expected return is the return that an investor expects to earn on a risky asset in the future. Therefore, in calculating the standard deviation of a portfolio with varying standard deviations, the mix should be lower than the investment with the least standard deviation due to the diversification of funds. less than or equal to (depending upon the correlation between securities), The ideal correlation for 1. They do not like risk. common stocks between 1900 and 2011?, The standard deviation of a two-stock portfolio generally equals the value-weighted average of the standard Study with Quizlet and memorize flashcards containing terms like Market risk is also referred to as?, Diversifiable risk is also referred to as?, What is the variance of a portfolio of risky securities? and more. 1. serves as the basis for computing the appropriate risk premium for that portfolio. 0 (1 review) Historical return data indicate that as the number of securities in a portfolio increases, the standard deviation of returns for the portfolio: Click the card to flip 👆 declines Click the card to flip 👆 Study with Quizlet and memorize flashcards containing terms like If standard deviation is used to measure the risk of stocks, one problem that arises is the inability to tell which stock is riskier by looking at the standard deviation alone. 15, 0. If a portfolio has a positive investment in every asset, the standard deviation on the portfolio can be less than that on every asset in the portfolio. Let's begin by discussing what the standard deviation of a portfolio is and how it is calculated. can be effectively eliminated by portfolio diversification. a. Sep 12, 2019 · Portfolio standard deviation measures risk, considering asset correlations. What is the reward-to-variability ratio? 1. S. , The variance or standard deviation measures the risk per unit of return. wanting the highest return possible. the variance of returns for a risky asset. Study with Quizlet and memorize flashcards containing terms like A portfolio is: A. It assumes that the portfolio being evaluated is well diversified. In the special case that all assets are closely related, portfolio the standard deviation is equal to the average deviation of the asset level and part deviation. D. The standard deviation of a portfolio is equal to a weighted average of the standard deviations of the individual securities held within the portfolio. the expected return on a collection of risky assets. He has decided that he would prefer a higher expected return. , Expected Risk Premium and more. 5 and a residual standard deviation of 30%. Study with Quizlet and memorize flashcards containing terms like Which of the following is most likely correct for a diversified stock portfolio that exhibits a higher standard deviation than the market index? a. The portfolio's beta is less than 1. You put the rest of your money in a risky bond portfolio that has an expected return Study with Quizlet and memorize flashcards containing terms like Which of the following statements is TRUE? A. smaller, riskier d Study with Quizlet and memorize flashcards containing terms like Sharpe Ratio, Which parts of the investment decision form the optimal risky portfolio?, Spreading a portfolio over many investments to avoid excessive exposure to any one source of risk is the definition of and more. can be effectively eliminated by portfolio diversification is measured by standard Study with Quizlet and memorize flashcards containing terms like Based on market history ,what is the average annual standard deviation of return for a single, randomly chosen stock? What is the average annual standard deviation for an equally weighted portfolio of many stocks?, If the returns on two stocks are highly correlated, what does this mean? If they have no correlation? If they are Study with Quizlet and memorize flashcards containing terms like While standard deviation and beta are both measures of risk, there are differences between the two. Discuss how the investor can use the separation theorem and utility theory to produce an efficient portfolio suitable Variance is a standard statistical measure of spread. Market-wide systematic risks can be True or false: An expected return of a portfolio is the weighted average of the individual assets' expected returns; and the portfolio standard deviation is the weighted average of the individual assets' standard deviations. The standard deviation refers to the statistical indicator that measures the deviation or variance from a specific or target value. , Unsystematic Risk: is measured by beta. is a measure of that portfolio's systematic risk. The standard deviation of a portfolio can often be lowered by changing the weights of the securities in the portfolio. Which one of the following terms applies to the 28 percent? Portfolio beta Portfolio variance Portfolio standard deviation Portfolio weight Portfolio expected return and more. , A complete portfolio is a risky portfolio consisting of stocks and risky bonds. The standard deviation of a portfolio will tend to increase when ____. Labor strikes and part shortages are examples of market-wide systematic risks. Study with Quizlet and memorize flashcards containing terms like The standard deviation of the returns of a portfolio of securities will be _______________ the weighted average of the standard deviation of returns of the individual component securities. Study with Quizlet and memorize flashcards containing terms like A stock standard deviation indicates how the stock affects the riskiness of a diversified portfolio. Realistically, is it possible to reduce the standard deviation to this level? Explain. probability distribution b. larger, riskier c. Variance is a measure of total risk. , The The standard deviation of a portfolio: a. 6) shows, the portfolio the standard deviation is below the estimated half-asset level deviation. The standard deviation is a metric used to assess the absolute risk of an asset or a portfolio, which is determined as the square root of the variance, calculating a dataset's dispersion from its mean. is a weighed average of the standard deviations of the individual securities held in that portfolio. 0. increase b. , The ____ the standard deviation, the ____ the investment. Meaning, it indicates to investors how far the investment will differ from the anticipated return. Which of the following are possible values for the standard deviation of the portfolio? What is the standard deviation of the returns on a portfolio that is invested 37 percent in Stock Q and 63 percent in Stock R? State of Economy: Boom, Normal Probability of State of Economy: 0. In terms of portfolio, standard deviation refers to the value of how the actual return deviates from the portfolio's target return. Study with Quizlet and memorize flashcards containing terms like In a normal distribution, the highest probability event occurs near the left tail mean all right tail, True or false: The risk-free asset has the highest Sharpe ratio of all assets. The square root of the variance is used to compute the portfolio's standard deviation. The portfolio's stock plot below the security market line. Study with Quizlet and memorize flashcards containing terms like The weighted average of the standard deviations of the assets in portfolio C is 12. The portfolio contains fairly aggressive stocks. Find step-by-step solutions and your answer to the following textbook question: What is the relationship of the portfolio standard deviation to the weighted average of the standard deviations of the component assets?. The deviations must be be squared to eliminate all negative values Which of these represents an optimal portfolio comprised of two stocks? 14. In the context of portfolio returns, we can determine a portfolio's standard deviation as the weighted standard deviation of each of its components and the correlation between components Study with Quizlet and memorize flashcards containing terms like The slope of the security market line represents the:, Security Market Line (SML):, Stock A comprises 28 percent of Susan's portfolio. 5%. Study with Quizlet and memorize flashcards containing terms like which of the following measures the amount is systematic risk present in a particular risky asset relative to the systematic risk present in an average risky asset? - beta - reward to risk ratio - risk ratio - standard deviation - price earnings ratio, Standard deviation measures which type of risk? - total - nondiversifiable Study with Quizlet and memorize flashcards containing terms like The standard deviations of individual stocks are generally higher than the standard deviation of the market portfolio because individual stocks: a. 62 3. 25 equals 20%? The standard deviation of a portfolio of assets will be - (less/greater) than a single asset, if the assets in the portfolio have a - (high/low) correlation coefficient. expected value d. , The Sharpe ratio of a portfolio is the portfolio return divided by the standard deviation of the market's excess return the portfolio risk premium Study with Quizlet and memorize flashcards containing terms like Which of the following are examples of a portfolio?, The minimum required on a new project is known as the:, what is the definition of expected return? and more. standard deviation; beta, E. The risk-free rate is 17%. A portfolio's standard deviation is not merely the weighted average of the standard deviations of the individual assets. The portfolio contains a The standard deviation of a portfolio of assets will be ______than a single asset, if the assets in the portfolio have a _______ correlation coefficient. Standard Study with Quizlet and memorize flashcards containing terms like The ____ is a statistical measure of the mean or average value of the possible outcomes. , 2. Which of the following are possible values for the standard deviation of the portfolio? Study with Quizlet and memorize flashcards containing terms like True or false: The expected return is a probability weighted average, while the risk is represented by the standard deviation of the probability weighted average of the squared deviations. II. Study with Quizlet and memorize flashcards containing terms like The S&P 500 had the highest decade average return for which period?, Which of the following are examples of diversifiable risk? Select all that apply. c. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 30%, the portfolio's standard deviation (σpσp) most likely is less than 30%. Chapter 13 4. not be affected c. Since a portfolio is composed of investments with varying standard deviation, the standard deviation of a portfolio can be less than the weighted average of the standard deviations of the individual securities held in that portfolio. A) the portfolio standard deviation will be less than the weighted average of the individual security standard deviations. Study with Quizlet and memorize flashcards containing terms like The expected return is a summation of the _______ under different scenarios, weighted by the ________ of that return occurring. Given the following information, what is the standard deviation of the returns on a portfolio that is invested 40 percent in Stock A, 35 percent in Stock B, and the remainder in Stock C? It adjusts the return for variability by using standard deviation as the measure of risk. wanting as much risk as possible. , You put half of your money in a stock portfolio that has an expected return of 14% and a standard deviation of 24%. 2. Match True or false: An expected return of a portfolio is the weighted average of the individual assets' expected returns; and the portfolio standard deviation is the weighted average of the individual assets' standard deviations. The expected return on a risky asset depends only on that asset's systematic risk since unsystematic risk can Study with Quizlet and memorize flashcards containing terms like The primary difference between the standard deviation and the coefficient of variation as measures of risk is:, The _______ the standard deviation, the _______ the investment. Therefore, the standard deviation is a better measure of a Stock's relevant risk than its beta coefficient, which measures total, or stand-alone, risk. C) the assets have a correlation coefficient greater than zero. Portfolio variation is the weight of an item in the covariance matrix, with The standard deviation of the market-index portfolio is 20%. 09 Rate of Return if State Occurs: Stock R 0. It indicates by how much the realized return differs from the return required by the capital asset pricing model. 2 percent, a standard deviation of 16. 4. 15 in its beta or an increase of 3% (from 30% to 33%) in its residual standard deviation? b. Measured by the standard deviation of returns, by how much would your cousin's risk have been reduced if he had held a portfolio consisting of 60% in ECB and the remainder in WCB? (Hint: Use the sample standard deviation formula. eliminate all risks increase returns and risks. and more. standard deviation c. 9%. A is incorrect because the Sharpe ratio is a measure of risk-adjusted performance that reflects the excess return on a portfolio per unit of risk. An investor who currently holds the market-index portfolio decides to reduce the port-folio The standard deviation of a portfolio can often be lowered by changing the weights of the securities in the portfolio. If the variance of a portfolio increases, then the portfolio standard deviation will _____. 63% D. Study with Quizlet and memorize flashcards containing terms like Calculating the mean of HPR, Calculating variance of HPR, How to find standard deviation and more. True B. B is incorrect because the standard deviation considers all outcomes, both above and below the mean return. , True or false: Risk may cause expected return to differ from realized return. is compensated for by the risk premium. Study with Quizlet and memorize flashcards containing terms like Which of the following statements is/are true? I. It is a better measure for investors who like gains as much as they dislike equivalent losses. The portfolio has an expected return of 11. , Which statement is true? (S&P 500) and more. the standard deviation of returns for a collection of risky assets. decrease A The minimum variance portfolio would be chosen by an investor a. E. Firm-specific risk. From a finance point of view, this measures the total risk of a portfolio: the higher the variance, the higher the risk of the portfolio. Theoretically, the standard deviation of a portfolio comprised of risky assets can be reduced to what level? Explain. The variance is the expected squared deviation from the expected return. A security's standard deviation indicates how volatile its returns are. 0025, what is the standard deviation?, Examples of a Portfolio: and more. can be less than the weighted average Study with Quizlet and memorize flashcards containing terms like True or false: The realized return could be significantly higher or lower than the expected rate. Quizlet has study tools to help you learn anything. The weighted average of the standard deviations of the assets in Portfolio C is 12. The standard deviation of returns is a useful measure of risk for individual assets in isolation, but is a misleading risk measure for assets in a portfolio due to the ________ effect caused by ________. , The security market line can be thought of as expressing relationships between required rates of return and and more. The standard deviation of a portfolio of assets is always equal to the sum of the individual assets standard deviations. 16, 0. The standard deviation of returns is a measure of total risk. 9% return; 25. Jun 23, 2022 · The standard deviation of a portfolio represents the variability of the returns of a portfolio. Study with Quizlet and memorize flashcards containing terms like market risk, expected rate of return, coefficient of variation and more. greater than D. , If you wish to create a portfolio of stocks, what is the required minimum number of stocks? and more. b. This is also called a measure of total risk. none of the above, what is the typical relationship between the return What is the standard deviation of returns of a 4-stock portfolio (each stock being equally weighted) that produced returns of 20%, 20%, 25%, and 30%? Study with Quizlet and memorize flashcards containing terms like Diversification works best when portfolio stock returns are ________ correlated, The standard deviation of returns is a useful measure of risk for individual assets in isolation, but is misleading risk measure for assets in a portfolio due to the _________ effect caused by ___________, what is true about portfolio diversification E. b)Diversification reduces the portfolio's expected return because it reduces a portfolio's total risk. 3 The optimum portfolio is said to occur at the point of tangency of the 4 If several individual investments each have high standard deviations, then the standard deviation for a portfolio of these same investments: - 11. , When adding a risky asset to a portfolio of many risky assets, which property of the asset is more important, its standard deviation or its covariance with the Study with Quizlet and memorize flashcards containing terms like When we compare the risk of two investments that have the same expected return, the coefficient of variation: -provides no additional information than the standard deviation -adjusts for the correlation between the two instruments -gives conflicting results compared to the standard deviation -always gives us a value between 0 and Study with Quizlet and memorize flashcards containing terms like when an investor is diversified only _________ risk matters, which of the following are examples of a portfolio?, what is variance? and more. 2 percent, and a beta of 1. maximize expected return for a given level of risk. 3. -The risk of a single asset Assume a portfolio with a return of 12 percent with a standard deviation of 18 percent is an efficient portfolio. False, The coefficient of variation, calculated as the standard deviation of expected returns divided by the expected return, is a standardized measure of the risk Study with Quizlet and memorize flashcards containing terms like Which of the following is the concept and procedure for combining securities into a portfolio to minimize risk?, Which of these is the term for portfolios with the highest return possible for each risk level?, The efficient frontier portfolios are and more. , Brisco believes The standard deviations of individual stocks are generally higher than the standard deviation of the market portfolio because the market portfolio: Study with Quizlet and memorize flashcards containing terms like What is the definition of expected return?, What is a risk premium?, The standard deviation is ___. , Which of the following is true? -The risk of a portfolio of assets tends to be greater than for a single asset. minimize expected return for a given An investment with a high standard deviation is risky and unstable. Study with Quizlet and memorize flashcards containing terms like Expected Return, If the variance of a portfolio is . , Which of the following statements is (are) true about variance? Multiple select question. The normal distribution is completely described by its mean and standard deviation. 85 Rate of Return if State Occurs: Stock Q 0. have more diversifiable risk d. See an expert-written answer! We have an expert-written solution to this problem! What is the standard deviation of the market portfolio if the standard deviation of a well-diversified portfolio with a beta of 1. 84% Returns for the Alcoff Company over the last 3 years are shown below. , What is an expected return?, What is the most commonly used measure of dispersion? and more. In the US, small stocks have provided the highest return followed by large stocks in S&P 500. Study with Quizlet and memorize flashcards containing terms like The primary purpose of portfolio diversification is to: eliminate asset-specific risk. do not have unique risk e. Undiversifiable risk III. , The ____ is an absolute measure of risk, and the ____ is a relative measure of risk. C. c)As more securities are added to a portfolio, total risk typically can be expected to fall at a The weighted average of the standard deviations of the assets in Portfolio C is 12. The Standard deviation of the portfolio, which is determined as the square root of the variance, measures a dataset's dispersion from its mean. smaller, larger the expected return on b. Also, we learn how to calculate the standard deviation of the portfolio (three assets). coefficient of variation, The ____ the standard deviation, the ____ the investment. Decreases. As we increase the number of stocks in a portfolio, the standard deviation of returns of the portfolio _____. wanting as little risk as possible. 65, The efficient frontier represents a set of portfolios that: 1. Total risk includes both systematic and unsystematic risk. Guide to what is Portfolio Standard Deviation, its interpretation along with examples. Study with Quizlet and memorize flashcards containing terms like The ____ is a statistical measure of the mean or average value of the possible outcomes. Improve your grades and reach your goals with flashcards, practice tests and expert-written solutions today. Systematic risk is measured by ____. Besides, as the portfolio variation formula (Equation 6. ) 3. Study with Quizlet and memorise flashcards containing terms like 1. D)Standard deviation and beta are different, but both measure total risk. Systematic risk II. 60 4. Which of the following are possible values for the standard deviation of the portfolio?, If the variance of a portfolio increases, then the portfolio standard deviation will _________, If the variance of a portfolio is . equal to B. See full list on investopedia. 37% B. 0025, what is the Study with Quizlet and memorize flashcards containing terms like Risk that can be eliminated through diversification is called ______ risk. , If investors are risk averse, it is reasonable to assume that the risk premium for the stock market will be ______. , What is the definition of expected return?, The standard deviation is ___. TRUE. measures the amount of diversifiable risk inherent in the portfolio. e. 21. Study with Quizlet and memorize flashcards containing terms like The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation. Learn the formula and steps to calculate standard deviation for a portfolio. Study with Quizlet and memorize flashcards containing terms like D. III. Stock A has a beta of 1. B. Which one of these is most apt to also be an efficient portfolio? Study with Quizlet and memorize flashcards containing terms like Asset A has an expected return of 35% and a standard deviation of 40%. 4% standard deviation MPT is designed to achieve what? Highest return for a given level of risk The dollar return on a stock investment includes which Study with Quizlet and memorize flashcards containing terms like Define risk. 8% standard deviation 14. 45 2. eliminate systematic risk. , What has been the average annual rate of return in real terms for a portfolio of U. Which of the following is correct? A)Beta measures all risk. The portfolio concentration in a single cyclical industry increases. B) the portfolio standard deviation will always be equal to the securities' covariance. The standard deviation is the appropriate measure of risk for a portfolio of assets with normally distributed returns. d. , A higher coefficient of variation indicates more risk per unit of return. ***The standard deviation of a portfolio is equal to a weighted average of the standard deviations of the individual securities held within the portfolio. What would make for a larger increase in the stock's variance: an increase of . Find step-by-step solutions and your answer to the following textbook question: Calculate the standard deviation of portfolio. spreading an investment across many diverse assets will eliminate some of the total risk, A. It is due to the diversification of funds that spreads out the risks and rewards associated with individual investments. Study with Quizlet and memorize flashcards containing terms like What's the population and sample variance formula?, What is the correlation formula?, What is the sample Covariance formula? and more. Study with Quizlet and memorize flashcards containing terms like Market risk is also called: I. Study with Quizlet and memorize flashcards containing terms like In forming a portfolio of two risky assets, what must be true of the correlation coefficient between their returns if there are to be gains from diversification? Explain. B) the assets have a correlation coefficient equal to zero. an aggressive stock, expected to increase more than the market increases. , The risk of a portfolio can be described as the ______ deviation of returns during the same series. IV. Study with Quizlet and memorize flashcards containing terms like Diversification is the process of:, Which of the following would be the best example of systematic risk?, The beta of a portfolio is the: and more. Study with Quizlet and memorize flashcards containing terms like the complete portfolio refers to the investment in, what measure of returns ignores compounding, If you want to measure the performance of your investment in a fund, including the timing of your purchases and redemptions, you should calculate the __________. Study with Quizlet and memorize flashcards containing terms like As the number of stocks in a portfolio is increased:, The type of risk that can be eliminated by diversification is called:, A statistical measure of the degree to which securities' returns move together is called a: and more. The expected return on the risk-free asset . A) the assets have a correlation coefficient less than zero. , A Stock's beta coefficient measures the tendency of its returns to move with Study with Quizlet and memorize flashcards containing terms like Which statement about portfolio diversification is correct? a)Proper diversification can reduce or eliminate systematic risk. B)Beta measures only systematic risk C)Beta measures only unsystematic risk. 0. 3% return; 24. To calculate it, you need some information about your portfolio as a whole, and each security within it. Investors demand a higher return that have larger fluctuations in value because _________. com The standard deviation of a two-asset portfolio is a linear function of the assets' weights when the assets have a correlation coefficient equal to one. 28% E. , Market risk is also called __________ and _________. Study with Quizlet and memorize flashcards containing terms like What is the beta of a portfolio where you invest 50% of your money in the risk-free asset and the rest in the market portfolio?, You want to build a two-asset portfolio which includes the risk-free asset and the market portfolio. We have an expert-written solution to this problem! Study with Quizlet and memorize flashcards containing terms like What is the definition of expected return?, The standard deviation is Blank______. It is still determined by a combination of individual asset fluctuation, correlations, and portfolio weights. The standard deviation is a statistical metric that measures the dispersion between the data points and the mean, so it shows to what extent this set of data points deviate and spread out from the average. Study with Quizlet and memorize flashcards containing terms like When an investor is diversified only ________ risk matters. a group of assets, such as stocks and bonds, held as a collective unit by an investor. You want the portfolio to have an expected return of 5. offer higher returns b. 13 A. have more systematic risk c. the expected return on a risky asset. 5 percent return; 17 percent standard deviation - 11 percent return; 15 percent standard deviation Which of these defines correlation? Statistical value ranging from -1 to +1 What determines the weights to be used in computing a portfolio rate of return? Select an answer that applies to both equal and unequal portfolio allocations. A. less than C. Both alpha and beta appear in the ratio formula. ovjbrhhciksyrypgdraxeedtxqefxxqfalvavjpcbhisldjrvotxzgo