Assume the Correlation Coefficient Between the Returns on the Existing

question 38

Multiple Choice

Assume the correlation coefficient between the returns on the existing project and the return on a proposed foreign project is 1. Also assume the returns on existing project and the new project are equal, and that the existing project has a lower standard deviation than the proposed project. Under this scenario, undertaking the proposed project will ____ the variance of the firm's overall returns.

• A) decrease
• B) increase
• C) decrease or increase, depending on the exact size of the returns and standard deviations
• D) None of the above

---

Definitions:

Officers

Individuals appointed to manage day-to-day activities and make executive decisions in a corporation, such as CEOs, CFOs, and COOs.

Corporate Liability

The legal concept that a corporation, separate from its associated individuals, can be held accountable for its actions and responsibilities.

Cable Shipping Ltd.

Appears to be the name of a specific company rather than a recognized key term. NO.

Majority Owner

A majority owner refers to an individual or entity that holds more than 50% of a company's shares, thereby having significant control and decision-making power within the company.