A Completely Diversified Portfolio Would Have a Correlation with the Market

question 98

Multiple Choice

A completely diversified portfolio would have a correlation with the market portfolio that is

• A) equal to zero because it has only unsystematic risk.
• B) equal to one because it has only systematic risk.
• C) less than zero because it has only systematic risk.
• D) less than one because it has only unsystematic risk.
• E) less than one because it has only systematic risk.

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Definitions:

Pure Competition

A market structure characterized by a large number of sellers and buyers, free entry and exit, and a product that is homogeneous across producers.

P = MC

An economic condition where price equals marginal cost, indicating optimal resource allocation in perfectly competitive markets.

Optimally Allocated

Refers to the distribution of resources in a manner that maximizes efficiency and effectiveness, often resulting in the best possible outcome.

Short-Run Supply

The total quantity of goods and services that producers are willing and able to sell at current prices in a short-term period, often influenced by fixed production capacities.