Which of the following statements is true regarding time diversification?
i. The standard deviation of the average annual rate of return over several years will be smaller than the one-year standard deviation. II. For a longer time horizon, uncertainty compounds over a greater number of years.
III. Time diversification does not reduce risk.
A)I only
B)None of these answers are correct
C)II and III only
D)I, II and III

Question

Quizplus · Accepted Answer

Time diversification suggests that while the standard deviation of the average annual return decreases over time (I), the total uncertainty or risk compounds over a longer period (II), and thus, time diversification does not actually reduce risk (III).

Which of the Following Statements Is True Regarding Time Diversification