Carl Plans to Add One of Two Alternative Stocks to His

question 70

Multiple Choice

Carl plans to add one of two alternative stocks to his portfolio. Stock A has a correlation of 0.70 with his portfolio and Stock B has a correlation of 0.10. Both stocks have the same standard deviation of returns. Based on this information, relative to Stock A, Stock B will result in:

• A) more total risk and less active risk for the portfolio.
• B) less total risk and more active risk for the portfolio.
• C) more total risk and more active risk for the portfolio.
• D) less total risk and less active risk for the portfolio.

---

Definitions:

Great Depression

A severe worldwide economic downturn that lasted from 1929 to the late 1930s, marked by mass unemployment, deflation, and widespread poverty.

Liberation and Freedom

Conditions or states of being freed from restraint or oppression, often related to political, social, or economic contexts.

Flapper

A term used in the 1920s to describe a new generation of young Western women who flaunted their disdain for what was then considered acceptable behavior, embracing new fashions and attitudes.

World War I Veterans

Individuals who served in the military forces during World War I (1914-1918), a global war centered in Europe, involving many of the world's great powers.