If the Returns of Two Assets Are Perfectly Positively Correlated

question 50

Multiple Choice

If the returns of two assets are perfectly positively correlated, an investor who puts half of his/her savings into each will:

• A) reduce risk.
• B) have a higher expected return.
• C) not gain from diversification.
• D) reduce risk but lower the expected return.

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Definitions:

Current Liability

Short-term financial obligations due within one year or within the entity's operating cycle, whichever is longer, impacting the company's cash flow and liquidity.

Current Earnings

The amount of net income that a company has earned during a specified period, usually the current fiscal quarter or year.

Interest-bearing Note

Interest-bearing Note is a debt instrument where the issuer pays the investor interest on the principal amount, typically at fixed intervals, until repayment of the principal at maturity.

Note's Face Value

The original value of a note receivable or bond as stated on the document before any interest is added.