Question

Answer with a clear true/false, and provide a detailed explanation to substantiate your answer:

a. An optimal portfolio should never include assets whose expected return and standard deviation are dominated by other available assets.

b. For the diversification effect to kick in, one needs negatively correlated assets in the portfolio.

c. As more and more assets are added to a portfolio, its total risk would typically fall at a decreasing rate.

Answer 1

Pg No-0 Solutions A). Its comprises investiment portfolio's that offer Highest Expected. Return for a Specific level of risk → portfolio Standard deviation Measures the expected variability in the rate of the portfolio and it is determined Based on Standard deviation of Returns of Cach Asset in portfolio portfolio Standard deviation is the Standard deviation of State of Return an investment portfolio aused to evaluate an investments irristic volatility. → High Standard deviation Show high Risk "False staterest B) Correlation Are Negative when price of the a investment move in different directions, → Divesification port Folio with non corredated assets Can My ftigate Volatiling & risk

→ Negitive correlation of investment are used with the portfolio risk management to decide allocate assetę u True Statement" c). The trade aff Between Risk & Return for a portfolio depends not only Expected Grooted Asset Return Asse & Variances it's an thie Correlation af Assets Ritum. → Theory of portfolio diver Sification. - The number of stocks increases the variance of the portfolio will decrease " Toue statement