The Global Minimum Variance Portfolio Formed from Two Risky Securities

question 34

Multiple Choice

The global minimum variance portfolio formed from two risky securities will be riskless when the correlation coefficient between the two securities is

• A) 0.0.
• B) 1.0.
• C) 0.5.
• D) −1.0.
• E) any negative number.

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Definitions:

Monetary Policy

The process by which the central bank or monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure economic stability and growth.

Federal Reserve

The central bank of the United States, responsible for monetary policy, regulating banks, maintaining financial stability, and providing financial services.

Reserve Ratio

The fraction of depositors' balances that banks must have on hand as cash, a regulation set by central banks to ensure liquidity.

Vault Cash

The physical currency that a bank holds in its vault and automatic teller machines (ATMs) as a part of its reserves.