Investments: Price-weighted vs. Value-weighted Indexes

To evaluate individual securities based on their potential returns.

To randomly select and invest in individual securities without analyzing their characteristics.

To reduce the risk associated with wealth while maintaining expected returns. (correct)

To increase the volatility of returns for individual securities.

By increasing the expected returns of individual securities.

By offering lower overall volatility of returns with equivalent expected returns. (correct)

By randomly selecting securities with similar characteristics.

By increasing the overall volatility of returns for a basket of securities.

Because equal weighting reduces the impact of high-risk securities.

Because portfolio standard deviation is affected by correlations between securities. (correct)

Because averaging standard deviations leads to inaccurate risk assessment.

Because individual securities have varying levels of risk and return.

<p>The ratio of the equally weighted portfolio's standard deviation to a randomly selected security's standard deviation.</p> Signup and view all the answers

<p>Portfolios offer equivalent expected returns and lower volatility than individual securities.</p> Signup and view all the answers

<p>Portfolio approach analyzes securities as contributors to a basket with similar characteristics.</p> Signup and view all the answers

<p>Reducing the risk associated with wealth without decreasing expected returns.</p> Signup and view all the answers