Other Things Equal, Diversification Is Most Effective When

question 65

Multiple Choice

Other things equal, diversification is most effective when

• A) securities' returns are uncorrelated.
• B) securities' returns are positively correlated.
• C) securities' returns are high.
• D) securities' returns are negatively correlated.
• E) securities' returns are positively correlated and high.

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Definitions:

Lessee

A person or entity that leases an asset from another, obtaining the right to use that asset in exchange for periodic lease payments.

Short Notice

A term indicating that something is happening or is required to happen with minimal warning or preparation time.

Financial Lease

A type of lease where the lessee essentially rents an asset for most of its useful life and the lease terms closely resemble the conditions of outright ownership.

Long-term

Refers to an extended period of time, typically over one year, used in the context of investments, loans, or planning, indicating a focus on future benefits rather than immediate outcomes.