Which one of these statements is correct regarding a portfolio of two risky securities?
A)Both the rate of return and the standard deviation of a portfolio can be changed by changing the portfolio weights.
B)The opportunity set is represented by a forward bending curve when expected returns are graphed against standard deviation.
C)Diversification occurs when the correlation between two securities is +1.
D)The standard deviation of a portfolio cannot be lower than the weighted average standard deviation of the securities held within the portfolio.
E)The minimum variance portfolio of two stocks also represents the portfolio's highest possible rate of return.

Question

Quizplus · Accepted Answer

The rate of return and standard deviation of a portfolio depend on the weights of the securities in the portfolio. By changing the weights, we can change both the rate of return and the risk level (measured by standard deviation) of the portfolio.

Which One of These Statements Is Correct Regarding a Portfolio