The Benefits of Portfolio Diversification Are Highest When the Individual

question 7

Multiple Choice

The benefits of portfolio diversification are highest when the individual securities have returns that:

• A)vary directly with the rest of the portfolio.
• B)vary indirectly with the rest of the portfolio.
• C)are uncorrelated with the rest of the portfolio.
• D)are countercyclical.

---

Definitions:

Variable Cost

A cost that varies, in total, in direct proportion to changes in the level of activity. A variable cost is constant per unit.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.

Split-off Point

The stage in a production process where multiple products are derived from a single process or input, and individual product costings begin.

Financial Advantage

Refers to the benefit or upper hand that a business or individual has in a financial situation, often leading to better profitability or investment outcomes.