If the Correlation Between Two Stocks Is +1, Then a Portfolio

question 34

Multiple Choice

If the correlation between two stocks is +1, then a portfolio combining these two stocks will have a variance that is:

• A)less than the weighted average of the two individual variances.
• B)greater than the weighted average of the two individual variances.
• C)equal to the weighted average of the two individual variances.
• D)less than or equal to average variance of the two weighted variances, depending on other information.
• E)None of the above.

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Definitions:

Introspection

The act of looking into one's own mental and emotional processes.

Unconscious Motivation

Influences on behavior from parts of the mind that are not within an individual's conscious awareness.

Lever Pressing

A term often used in behavioral psychology referring to an action that an animal performs to receive a reward or avoid punishment.

Theorists

Individuals who develop abstract concepts, models, or frameworks to explain various aspects of the physical or social world.