Which of A) Through C) Is FALSE

question 36

Multiple Choice

Which of a) through c) is FALSE?

• A) The risk of an individual asset when held in a portfolio with a large number of assets depends on its covariance with other assets in the portfolio.
• B) As the number of assets held in a portfolio increases, the covariance terms begin to dominate the portfolio variance calculation.
• C) The extent to which risk is reduced by portfolio diversification depends on how highly the individual assets in the portfolio are correlated.
• D) All of the above are true.
• E) All of the above are false.

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Definitions:

Profit

Profit is the financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Call Premium

The additional amount that the price of a call option exceeds its intrinsic value, often influenced by time remaining until expiration and volatility.

Put Premium

The price that an investor pays for the right but not the obligation to sell a specified amount of an underlying asset at a predetermined price within a specified time frame.

Long Straddle

An options trading strategy that involves purchasing both a call and a put option on the same asset with the same expiration date and strike price, betting on volatility.