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Author Question: Discuss whether the standard deviation of a portfolio is, or is not, a weighted average of the ... (Read 69 times)

go.lag

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on: Jul 11, 2018
Discuss whether the standard deviation of a portfolio is, or is not, a weighted average of the standard deviations
  of the assets in the portfolio. Fully explain your answer.
 
  What will be an ideal response?

Question 2

Which of the following ratios would be the most useful to assess the risk associated with a firm
  being able to pay off its short-term line of credit?
 
  A) the acid test ratio B) the fixed asset turnover
  C) the operating profit margin D) return on equity


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tuate

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Reply #1 on: Jul 11, 2018
Answer to Question 1

The standard deviation of a portfolio is not a weighted average of the standard deviations of the assets in the portfolio.
If the portfolio is well-diversified then it should have a standard deviation that is lower than most or all of the assets
placed in that portfolio. Betas can be averaged, but standard deviations cannot, due to the diversifiable risk that is
contained in the standard deviation but not reflected by beta.

Answer to Question 2

A


go.lag

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  • Posts: 667
Reply 2 on: Jul 11, 2018
Great answer, keep it coming :)

ryansturges

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  • Posts: 338
Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

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