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

Question

Quizplus · Accepted Answer

When evaluating portfolio risk, it's important to consider how the returns of each project in the portfolio are correlated. This is because the correlation between project returns has a significant impact on the overall risk of the portfolio. For example, if all projects have a high positive correlation, then the portfolio will be more risky than if the projects have a low or negative correlation, as the same macroeconomic factors will impact all projects positively. Therefore, option D is the best choice. Option A is incorrect because the impact of a given project on the overall risk of the firm does need to be considered when evaluating portfolio risk. Option B is incorrect because it's possible for a risky investment to create a portfolio with less risk if its returns are negatively correlated with the returns of the other projects in the portfolio. Option C is incorrect because only considering the risk of the project with the highest beta would provide an incomplete and potentially misleading assessment of portfolio risk.

In a Portfolio,risk Is Evaluated in a Different Way Than