The variance of a portfolio of risky securities
A) is a weighted sum of the securities' variances.
B) is the sum of the securities' variances.
C) is the weighted sum of the securities' variances and covariances.
D) is the sum of the securities' covariances.
E) none of these.

Question

Quizplus · Accepted Answer

The variance of a portfolio of risky securities is affected not only by the variance of each individual security but also by the covariances between them. Therefore, the correct answer is the weighted sum of the securities' variances and covariances, which is option C.

The Variance of a Portfolio of Risky Securities