For Purposes of Maximum Portfolio Diversification, Which for the Following

question 106

Multiple Choice

For purposes of maximum portfolio diversification, which for the following would provide the greatest diversification?

• A) Security A with a correlation coefficient of -0.0
• B) Security B with a correlation coefficient of 0.0
• C) Security C with a correlation coefficient of -0.50
• D) Security D with a correlation coefficient of 0.50

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Definitions:

Initial Endowment

The initial distribution of wealth, goods, or resources that individuals or firms possess in an economic model.

Leisure

A period of free time not taken up by work, during which an individual can relax, enjoy hobbies, or engage in other activities that they find pleasurable.

Normal Good

A good for which demand increases as the income of individuals increases, all other factors being constant.

Utility Function

An economic formula that explains the preference ratings associated with consuming different combinations of goods, reflecting consumer satisfaction.