If Two Investments Are Uncorrelated

question 37

Multiple Choice

If two investments are uncorrelated

• A) There is no benefit from diversification
• B) There is no benefit to hedging
• C) Diversification reduces risk without changing the expected payoff
• D) Diversification reduces both risk and the expected payoff

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Definitions:

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Return on Assets

A financial metric that measures the profitability of a company relative to its total assets, indicating how effectively a company uses its assets to generate profit.

Research Findings

Outcomes or conclusions derived from systematic investigation into a study area to establish facts or reach new conclusions.

GAAP Conservatism

An accounting principle that entails erring on the side of caution, providing for potential losses or liabilities.