The Separation Theorem Says That

question 31

Multiple Choice

The separation theorem says that:

• A) expected return of a portfolio is separate from its variance. Investment decisions can be made separately from consumption decisions.
• B) lending decisions can be made jointly with borrowing decisions.
• C) systematic risk and unsystematic risk should be considered separately.
• D) variance of a portfolio is separate from its covariance.

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Definitions:

Pervasive

An adjective describing something that spreads widely throughout an area or a group of people, affecting every part of it.

Motives

Internal drives or reasons that trigger and direct human behavior towards specific goals.

Ego

The ego is one of the three components of the personality in Freud's psychoanalytic theory, acting as the mediator between the id's desires, the superego's moral standards, and reality.

Cardinal Trait

A dominant characteristic that defines a person's behavior and attitudes, often shaping their entire personality.