Combining Two Assets Having Perfectly Negatively Correlated Returns Will Result

question 63

Multiple Choice

Combining two assets having perfectly negatively correlated returns will result in the creation of aportfolio with an overall risk that

• A) decreases to a level below that of either asset.
• B) increases to a level above that of either asset.
• C) stabilizes to a level between the asset with the higher risk and the asset with the lower risk.
• D) remains unchanged.

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Definitions:

Total Cost Concept

An accounting principle that sums all costs associated with the production of a good or service, including direct, indirect, fixed, and variable costs.

Variable Costs

Costs that vary in direct proportion to changes in the level of production or sales activity.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue contributes towards covering fixed costs and generating profit.

Machine Hours

A measure of production time, calculated as the total hours that machinery is operated over a specific period.