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Question of the Week - Portfolio Management

AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
edited November 2015 in Level 1 Questions
An analyst is given the following information:
• The standard deviation of the equal-weighted portfolio is 20%.
• The standard deviation of the randomly selected security is 25%.
The diversification ratio of the randomly selected security is closest to:
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Question of the Week - Portfolio Management 24 votes

0.25
16%
misha.sAcefromspacegreycardiganmatt86 4 votes
0.80
54%
AdaptPreprsparksCFAI_wont_stop_meArsenalFangstyleJAGcallahckvlpientojojolebPrashantadobeferociouspabulumsOLUSEGUN 13 votes
1.25
29%
jmsatchwellgoogs1484YeshankTheClawjtkachclangerhval1770 7 votes

Comments

  • AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
    0.80

    The diversification ratio is calculated as the ratio of the standard deviation of the equal-weighted portfolio to the standard deviation of the randomly selected security. Thus, the diversification ratio is 0.20/0.25 = 0.80.

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