If There Is No Diversification Benefit Derived from Combining Two

question 44

Multiple Choice

If there is no diversification benefit derived from combining two risky stocks into one portfolio,then the

• A)returns on the two stocks must move perfectly in sync with one another.
• B)returns on the two stocks must move perfectly opposite of one another.
• C)stocks must have a zero correlation.
• D)portfolio is equally weighted between the two stocks.
• E)two stocks are completely unrelated to one another.

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Definitions:

Effective Annual Interest Rate

The real return on an investment after accounting for the effect of compounding interest over a period.

Inventory Period

The average time it takes for inventory to be sold and replaced over a period, indicating the efficiency of a company's inventory management.

Credit Sales

Sales in which the customer is allowed to pay at a later time, typically generating accounts receivable on the balance sheet.

COGS

Cost of Goods Sold; the direct costs attributable to the production of the goods sold by a company, including materials and labor.