Which of the Following Statements Is True

question 9

Multiple Choice

Which of the following statements is true?

• A)Two assets that are perfectly negatively correlated can produce a portfolio with zero variance.
• B)Adding an asset to a portfolio by random selection will reduce the risk of a portfolio.
• C)Adding a riskless security to a portfolio will increase its overall risk.
• D)The amount of risk reduction that can be achieved by adding a new security to an existing portfolio increases as the correlation between the expected returns of the new security and the expected returns on the existing portfolio increases.

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Definitions:

Bipolar Constructs

Cognitive frameworks that consist of opposite or polar dimensions used to evaluate and categorize concepts.

Constructs

Cognitive structures or mental models used to process and interpret information.

Construct Systems

Theoretical frameworks used to understand and predict how individuals interpret experiences and phenomena.

Personal Construct Theory

A psychological theory developed by George Kelly, positing that individuals use personal constructs (bipolar dimensions of judgment) to understand and predict the world.