In General, Which Stocks Should Be Combined into a Portfolio

question 73

Multiple Choice

In general, which stocks should be combined into a portfolio if the goal is the greatest reduction possible in overall portfolio risk?

• A) Stocks with returns that are positively correlated
• B) Stocks with returns that are negatively correlated
• C) Stocks with returns that are not correlated
• D)Stocks that have the highest expected returns

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Definitions:

Working Capital

The difference between a company's current assets and current liabilities, indicating its liquidity and operational efficiency.

Discount Factor

A multiplier used in discounted cash flow (DCF) analysis to calculate the present value of future cash flows, accounting for time value of money.

Salvage Value

The estimated residual value of an asset at the end of its useful life, often considered in depreciation calculations.

Cash Operating Costs

The expenses directly associated with the day-to-day operations of a business, excluding non-cash items like depreciation.