Answer to Question 1:

Diversification of one's portfolio across a number of assets always reduces the variability of the portfolio return below the variability of the returns to those assets in it that have the most variable returns.

True or False?


True! When we pool assets together in a portfolio, the assets with less variable returns always "water down" the variability due to the high-variability assets. As a result, the variability of the average return will always be less than the variability of the return to the highest-variability assets.

If you could did not answer this question correctly, you need to work your way through this topic again from the very beginning!

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