Consider a portfolio where equal investment is made in each of the n stocks. Thus, the proportion invested in each stock is 1/n. Prove that the ortfolio variance will be: Portfolio Variance = 1 Average Variance (1-1) Average Covariance By using the equation above, discuss the power and limits to diversification.

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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3. Consider a portfolio where equal investment is made in each of the n stocks. Thus, the proportion invested in each stock is 1/n. Prove that the
portfolio variance will be:
Portfolio V ariance = LAverage V ariance (1-) Average Covariance
4. By using the equation above, discuss the power and limits to diversification.
Transcribed Image Text:3. Consider a portfolio where equal investment is made in each of the n stocks. Thus, the proportion invested in each stock is 1/n. Prove that the portfolio variance will be: Portfolio V ariance = LAverage V ariance (1-) Average Covariance 4. By using the equation above, discuss the power and limits to diversification.
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