In a Two-Security Minimum Variance Portfolio Where the Correlation Between

question 59

Multiple Choice

In a two-security minimum variance portfolio where the correlation between securities is greater than −1.0,

• A) the security with the higher standard deviation will be weighted more heavily.
• B) the security with the higher standard deviation will be weighted less heavily.
• C) the two securities will be equally weighted.
• D) the risk will be zero.
• E) the return will be zero.

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Definitions:

Net Taxes

The difference between taxes paid to the government and transfer payments received from the government.

Circular Flow

An economic model that depicts how money moves through an economy between producers and consumers, illustrating the interactions between different sectors.

Injections

In economic terms, it refers to the introduction of income into the flow of the economy through investment, government spending, or exports.

Consumer Price Index (CPI)

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, used to estimate the cost of living.