Question 5: Rula states Theoretically, the total risk of a portfolio can be reduced to zero....
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Question 5: Rula states "Theoretically, the total risk of a portfolio can be reduced to zero". a) Under what circumstances is Rula's statement true. In your answer indicate whether Rula's (1 mark) statement applies for figures la and/or lb. Figure la Return Portfolio risk (5) P M 5 10 15 20 Number of securities in portfolio Return Figure lb Time N Time b) Realistically, is it possible to reduce the standard deviation to zero? Explain. In your answer (2 marks) indicate the total portfolio risk and the breakdown of the risk on figure 2. Figure 2 M Question 5: Rula states "Theoretically, the total risk of a portfolio can be reduced to zero". a) Under what circumstances is Rula's statement true. In your answer indicate whether Rula's (1 mark) statement applies for figures la and/or lb. Figure la Return Portfolio risk (5) P M 5 10 15 20 Number of securities in portfolio Return Figure lb Time N Time b) Realistically, is it possible to reduce the standard deviation to zero? Explain. In your answer (2 marks) indicate the total portfolio risk and the breakdown of the risk on figure 2. Figure 2 M
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