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:

Yield

The income returned on an investment, such as the interest or dividends received, typically expressed as a percentage of the investment’s cost or current market value.

Modified Duration

Modified Duration measures the sensitivity of the price of a bond or other debt instrument to a change in interest rates, indicating the percentage change in price for a parallel shift in rates.

Modified Duration

A measure of the sensitivity of a bond's or bond portfolio's price to changes in interest rates, adjusting for the changing yield to maturity.

Market Yield

The current yield of a bond or other fixed-income security, calculated by dividing the annual interest income by the current market price.