If You Have a Portfolio of Two Risky Stocks Which

question 26

Multiple Choice

If you have a portfolio of two risky stocks which turns out to have no diversification. The reason you have no diversification is:

• A) the returns are too small.
• B) the returns move perfectly opposite of one another.
• C) the returns are too large to offset.
• D) the returns move perfectly with one another.
• E) the returns are completely unrelated to one another.

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Definitions:

Midpoint Method

A technique for calculating the percent change in which changes in a variable are compared with the average, or midpoint, of the starting and final values.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, reflecting the sensitivity of consumers to price changes.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a specific price level, at a given time.

Price Elasticity

Refers to a measure of how much the quantity demanded of a product changes in response to a change in its price.