You currently have a portfolio comprised of 70% stocks and 30% bonds. Which one of the following must be true if you change the asset allocation?
A)The expected return will remain constant.
B)The revised portfolio will be perfectly negatively correlated with the initial portfolio.
C)The two portfolios could have significantly different standard deviations.
D)The portfolio variance will be unaffected.
E)The portfolio variance will most likely decrease in value.

Question

Quizplus · Accepted Answer

If you change the asset allocation, the standard deviations of the two portfolios could be significantly different depending on the specific assets you select. The expected return may change depending on the new asset allocation. The portfolios are unlikely to be perfectly negatively correlated, and the portfolio variance is likely to be affected by the change in asset allocation. While it is possible that the portfolio variance may decrease, this is not necessarily true as it depends on the specific assets selected.

You Currently Have a Portfolio Comprised of 70% Stocks and 30