With Regard to the Benefits of Diversification, Nominate the Incorrect

question 8

Multiple Choice

With regard to the benefits of diversification, nominate the incorrect statement:

• A) The expected (mean) return for the portfolio lies between the highest return for all assets in the portfolio and the lowest return for all assets in the portfolio.
• B) The riskiness of a portfolio is simply a weighted average of the standard deviations of the individual shares in the portfolio.
• C) Portfolio risk can be reduced to close to zero when the returns of the shares contained in the portfolio are perfectly negatively correlated, that is they have a correlation coefficient of -1.0.
• D) A correlation coefficient of -1 would indicate that the two companies move counter-cyclically to each other.

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Definitions:

Aperture

An opening, hole, or gap, often referring to the variable opening in the lens of a camera through which light passes.

Revolving Nosepiece

A part of a microscope that holds multiple objective lenses and can rotate to change magnification.

Objective Lens

An objective lens is the part of a microscope or telescope that gathers light from the sample being observed and focuses it to create an image.

Ocular Lens

The lens inside the eye that focuses light on the retina to create clear images.