Which of the following statements is true regarding time diversification?
I.The standard deviation of the average annual rate of return over several
Years will be smaller than the one-year standard deviation.
II.For a longer time horizon,uncertainty compounds over a greater number
Of years.
III.Time diversification does not reduce risk.
A) I only
B) II only
C) II and III only
D) I, II and III
E) None of the statements are correct

Question

Quizplus · Accepted Answer

Time diversification suggests that while the standard deviation of average annual returns decreases over time (I), the total uncertainty or risk compounds over a longer period (II), and thus, time diversification does not necessarily reduce risk (III).

Which of the Following Statements Is True Regarding Time Diversification