If ABC Inc

question 19

Multiple Choice

If ABC Inc. and XYZ Inc. have returns that are perfectly positively correlated:

• A) adding XYZ Inc to a portfolio that consists of only ABC Inc. will reduce risk.
• B) adding ABC Inc to a portfolio that includes only XYZ Inc. will increase risk.
• C) adding XYZ Inc. to a portfolio that consists of only ABC Inc. will neither increase nor decrease the risk of the portfolio.
• D) adding XYZ Inc to a portfolio that consists of only ABC Inc. will neither increase nor decrease idiosyncratic risk but will lower systematic risk.

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Definitions:

Direct Materials

Raw materials that are directly traceable to the production of a specific finished good.

Direct Labor Rate

The cost per hour for labor directly involved in producing goods or delivering services, typically used in calculating the total cost of production or service provision.

Machine Hours

A measure of production time, representing the total hours a machine is operated in the production of goods.

Factory Overhead Rate

The ratio of total indirect manufacturing costs to some base, commonly used to allocate overhead costs to products.