Which of the Following Statement(s) Is(are) True Regarding the Variance

question 43

Multiple Choice

Which of the following statement(s) is(are) true regarding the variance of a portfolio of two risky securities? I) The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance.
II) There is a linear relationship between the securities' coefficient of correlation and the portfolio variance.
III) The degree to which the portfolio variance is reduced depends on the degree of correlation between securities.

• A)I only
• B)II only
• C)III only
• D)I and II

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Definitions:

Corporation

A legal entity that is separate and distinct from its owners, capable of conducting business, entering into contracts, and owning assets.

Inventory Investment

The purchase of goods and materials for future sale or use, representing a business investment in stock.

Proprietorships

The simplest form of business organization owned by a single person, responsible for all the business’s operations and liabilities.

Partnerships

A business structure where two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Agreement.