You are comparing the returns of two portfolios for a 10-year period.Portfolio I has a lower dispersion of returns and a higher average rate of return than Portfolio II.Given this,what do you know with certainty?
A)Portfolio I has a lower standard deviation than Portfolio II.
B)Portfolio I is riskier than Portfolio II.
C)Portfolio II has less total risk than Portfolio I.
D)Portfolio I will outperform Portfolio II over the next 10 years.
E)Portfolio II consists of more individual stocks than Portfolio I.

Question

Quizplus · Accepted Answer

Lower dispersion of returns indicates lower standard deviation, so Portfolio I has a lower standard deviation than Portfolio II. However, we cannot say which portfolio is riskier or which one will outperform over the next 10 years based solely on the information given. Total risk cannot be determined without knowing the standard deviation and other risk factors for both portfolios. The number of individual stocks in each portfolio is also not given.

You Are Comparing the Returns of Two Portfolios for a 10-Year