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 portfolio weights determine both the rate of return and standard deviation of a portfolio. By changing the weights, the portfolio can be made more or less risky, and the expected rate of return can be increased or decreased accordingly.

Which One of These Statements Is Correct Regarding a Portfolio