You Are Given a Two-Asset Portfolio with a Fixed Correlation

question 15

Multiple Choice

You are given a two-asset portfolio with a fixed correlation coefficient. If the weights of the two assets are varied the expected portfolio return would be ____ and the expected portfolio standard deviation would be ____.

• A) nonlinear, elliptical
• B) nonlinear, circular
• C) linear, elliptical
• D) linear, circular
• E) circular, elliptical

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Definitions:

Variables

Characteristics or conditions that can change and potentially affect the outcome of a study or experiment.

Interrelationships

The way in which two or more concepts, objects, or people are connected and affect each other.

Discriminant Validity

The degree to which a measure does not associate too strongly with measures from which it is supposed to differ.

Correlation Coefficient

A statistical measure that quantifies the degree to which two variables vary together; it ranges from -1 to 1, indicating the strength and direction of the relationship.