In a portfolio, risk is evaluated in a different way than with an individual project. In evaluating portfolio risk we

Question

Quizplus · Accepted Answer

All of the choices are correct when evaluating portfolio risk. We need to consider the impact of a given project on the overall risk of the firm, recognize that a risky investment may create a portfolio with less risk, and consider how the returns of the projects in the portfolio are correlated. This is because the risk of a portfolio is not simply the sum of the risks of the individual projects in the portfolio, but also influenced by how the returns of the projects are related to each other. Therefore, all of the answer choices are relevant when evaluating portfolio risk.

In a Portfolio, Risk Is Evaluated in a Different Way