A Portfolio Combining Two Assets Whose Returns Are Less Than

question 136

True/False

A portfolio combining two assets whose returns are less than perfectly positive correlated can increase total risk to a level above that of either of the components.

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Definitions:

Inflationary Price Increase

A rise in prices across an economy, often due to an increase in the money supply or demand outstripping supply, reducing the purchasing power of money.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated as the beginning inventory plus purchases minus cost of goods sold.

Fixed Cost Per Unit

The total fixed costs divided by the number of units produced, representing the cost allocated to each unit.

Absorption Costing

A bookkeeping approach that incorporates all costs associated with production, including direct materials, direct labor, and both variable and fixed overhead expenses, into a product's cost.