Assume that every asset has the same expected return and variance. Furthermore, all assets have the same

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Assume that every asset has the same expected return and variance.

Furthermore, all assets have the same covariance with each other. As the number of assets in the portfolio grows, which becomes more important: variance or covariance? Clarify your answer using words, diagrams, formulae or a practical example.

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Corporate Finance

ISBN: 9780077173630

3rd Edition

Authors: David Hillier, Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, Jeffrey F. Jaffe

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Question Posted: Feb 22, 2024 03:01 AM

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Assume that every asset has the same expected return and variance. Furthermore, all assets have the same

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When all assets have the same expected return and variance the key factor that determines the portfolios risk and return profile is the covariance between the assets Covariance measures the degree to ...View the full answer

Corporate Finance

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