Question

If portfolio weights are positive: 1) Can the return on the portfolio ever be less than the smallest return on an individual sesitive 1) Can the return on the portfolio ever beless than in the portfoliof 2) Can the variance of a portfolio ever be less than the smallest variance of an individual security in the portfolio?

A) 1) yes: 2) no
B) 1) yes; 2) yes
C) 1) no: 2) no
D) 1) no: 2) yes

Answer 1

The return on the portfolio can never be less than the smallest return on an individual security in the portfolio, and the variance of a portfolio can never be less than the smallest variance of an individual security in the portfolio.The correct option is C) 1) no: 2) no.

Step-by-step explanation:

Answer:

The correct option is C) 1) no: 2) no.

If portfolio weights are positive:

1) The return on the portfolio can never be less than the smallest return on an individual security in the portfolio. This is because the return on the portfolio is a weighted average of the returns of the individual securities, and since the weights are positive, the return on the portfolio can only be higher than or equal to the smallest return.

2) The variance of a portfolio can never be less than the smallest variance of an individual security in the portfolio. Variance is a measure of risk, and a portfolio's variance is determined by the weighted variance of its constituent securities. Since the weights are positive, the weighted variance of the portfolio can only be higher than or equal to the smallest variance.