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Unformatted text preview: average of the individual risks [since the third term in the sum is now smaller than in (*) ]. In this case there are benefits from diversification, as the investor receives the weighted average of returns, but takes on less than the weighted average of the risks. n portfolio return = R p = w i r i the portfolio return is the weighted i=1 average of the individual returns n Key result: p < w i i but, the portfolio risk is less than the i=1 weighted average of the individual asset risks...
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This note was uploaded on 07/14/2010 for the course UGBA 103 taught by Professor Berk during the Summer '07 term at University of California, Berkeley.
 Summer '07
 Berk

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