Theoretically,the Correlation Coefficient Between a Completely Diversified Portfolio and the Market

question 75

Multiple Choice

Theoretically,the correlation coefficient between a completely diversified portfolio and the market portfolio should be

• A) -1.0.
• B) +1.0.
• C) 0.0.
• D) -0.5.
• E) +0.5.

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Definitions:

Noncallable Bonds

Bonds that cannot be redeemed by the issuer before their maturity date.

Callable Bonds

Bonds that can be redeemed by the issuer prior to their maturity date, usually at a predetermined price.

Future Interest Rates

An indication of what the cost of borrowing money or the rate of return on investments will be at a future date.

Callable Bonds

Bonds that give the issuer the right to redeem them before their maturity date at a pre-specified price.