Assume the Correlation Coefficient Between the Return on the Existing

question 34

Multiple Choice

Assume the correlation coefficient between the return on the existing project and the return on a proposed foreign project is 1. Also assume the returns on the 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

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Definitions:

Annual Reports

are comprehensive reports issued by a company at the end of each fiscal year, detailing its operations and financial conditions.

Publicity

Disseminating unpaid news items through some form of media (e.g., television story, newspaper article, etc.) to gain attention or support.

Narrowcasting

The dissemination of information to a fairly small, select audience that is defined by its shared values, preferences, or demographic attributes.

Major Television Networks

Large national or international broadcasting organizations that distribute television content across a wide geographic area.