Standard Deviation Security X Security Y Security Z Which of the following is co

Question

Standard Deviation

Security X

Security Y

Security Z

Which of the following is correct?

A. Security Z has the greatest total risk because it has the largest standard deviation

B. Security X has the greatest total risk because it has the largest beta

C. Security X has the greatest diversifiable risk because it has the largest beta

D. Security Y has the lowest total risk because it has the lowest beta

E. An equally-weighted portfolio of XYZ will have the same systematic risk as the market portfolio

Standard Deviation

Security X

Security Y

Security Z

Explanation / Answer

A) Security Z has the greatest total risk because it has the largest standard deviation

Total risk is measured by standard deviation, and beta measures the amount of systematic risk (undiversafiable). An equally weighted portfolio would have a beta of greater than the market (market beta =1). You cant have an average that is less than 1 if all of the numbers are greater than 1.

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