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The Correlation of the Two Assets Does Not Play Any

question 16

True/False

The correlation of the two assets does not play any role in computation of the expected return of the two-asset portfolio.

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Definitions:

Payback Period

The duration of time it takes for an investment to generate enough revenue to recover the initial cost of the investment.

Profitability Index

A measure used in capital budgeting to evaluate the profitability of an investment, calculated as the present value of future cash flows divided by the initial investment cost.

Discount Rate

The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve's discount window.

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