You Are Comparing Five Separate Portfolios Comprised of Two Stocks

question 47

Multiple Choice

You are comparing five separate portfolios comprised of two stocks each that have varying characteristics.Which characteristic is most indicative of a diversified portfolio?

• A)The standard deviation of the portfolio equals the weighted average standard deviation of the two securities.
• B)The correlation between the two securities is equal to zero.
• C)The covariance of the two securities is equal to one.
• D)There is a highly positive covariance between the two securities.
• E)The correlation between the two securities is negative.

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Definitions:

Withdrawals

The act of taking money out of an account, which can decrease the account balance.

Compounded Semi-annually

An interest calculation method where interest is added to the principal balance twice a year, affecting the total interest earned or paid.

Retirement Fund

A savings plan or account that is set aside for the purpose of supporting an individual financially during their retirement.

Deferred Annuity

An insurance product that delays payments of income, installments, or a lump sum until the investor elects to receive them.