If the Returns of Two Assets Are Perfectly Positively Correlated

question 1

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:

Common Shareholders

Individuals or entities that own shares of a company's common stock, granting them rights to dividends and voting in shareholder meetings.

Dividends

The portion of a company's earnings distributed to shareholders, usually in the form of cash or additional stock.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, often receiving dividends before common shareholders.

Voting Privileges

Rights granted to shareholders to vote on company decisions, often proportional to the number of shares owned.