A Change in the Correlation Coefficient of the Returns of Two

question 47

Multiple Choice

A change in the correlation coefficient of the returns of two securities in a portfolio causes a change in:

• A) both the expected return and the risk of the portfolio.
• B) only the expected return of the portfolio.
• C) only the risk level of the portfolio.
• D) neither the expected return nor the risk level of the portfolio.

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Definitions:

Interest Rate Swap

A financial derivative that companies use to exchange interest rate payments on debt over a set period.

Floating-Rate

An interest rate that fluctuates in response to market conditions or an index.

Currency Swap

Involves an agreement to exchange principal and interest in one currency for the same in another currency.

Foreign Currency Approach

A method used in global finance and investment analysis that involves evaluating investments or financial statements in a foreign currency.