Using the Markowitz Portfolio Approach,diversification

question 41

Multiple Choice

Using the Markowitz Portfolio Approach,diversification:

• A)increases risks and low correlation between assets indicates diversification potential,so low correlation between assets suggests that a firm is in a risk-prone position.
• B)increases risks and high correlation between assets indicates low diversification potential,so firms with low correlations have undertaken too much risk.
• C)reduces risk and low correlation between assets indicates diversification potential,so low correlation between assets offers a firm the opportunity to reduce risks.
• D)reduces risk and low correlation between assets indicates a lack of diversification,so low correlation between assets indicates that the firm needs to reconsider its risks.

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Definitions:

Null Hypothesis

A default hypothesis that there is no significant difference or association, used as a starting assumption in statistical testing.

F-ratio

The calculated statistic in ANOVA tests, determining whether there are any statistically significant differences between the means of three or more unrelated groups.

Income Levels

The categorized or continuous ranges of income received by individuals, households, or families, often used in socioeconomic and demographic analysis.

F Ratio

A statistic used in analysis of variance (ANOVA) to determine whether the means of several groups are equal.