Reduce the riskiness of a portfolio of stocks

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Reference no: EM133112520

-Which of the following is INCORRECT? (Explain why each correct answer is correct and why each incorrect answer is incorrect).

-Diversification will normally reduce the riskiness of a portfolio of stocks.

-This is correct because

-Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse

-This is correct because

-In portfolio analysis, we often use ex post (historical) returns and standard deviations, despite the fact that we are really interested in ex ante (future) data

-This is correct because

-The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation.

-This is incorrect because

-In general, investors are not compensated for holding diversifiable risk in their portfolios.

-This is correct because

Reference no: EM133112520

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