Which of the Following Statements Is FALSE

question 55

Multiple Choice

Which of the following statements is FALSE?

• A) The covariance and correlation allow us to measure the co-movement of returns.
• B) Correlation is the expected product of the deviations of two returns.
• C) Because the stocks' prices do not move identically, some of the risk is averaged out in a portfolio.
• D) The amount of risk that is eliminated in a portfolio depends on the degree to which the stocks face common risks and their prices move together.

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Definitions:

Marginal Rate

Often refers to the incremental increase in cost or benefit associated with a one-unit change in an economic activity.

Substitution

The economic principle where consumers replace more expensive items with less costly alternatives, or when firms swap higher-priced inputs with cheaper resources.

Income Effect

The change in consumption resulting from a change in real income.

Total Utility

The overall satisfaction or benefit a consumer receives from consuming a certain quantity of a good or service.