An Investor Will Get Maximum Risk Reduction by Combining Assets

question 86

Multiple Choice

An investor will get maximum risk reduction by combining assets that are

• A) negatively correlated.
• B) positively correlated.
• C) uncorrelated.
• D) perfectly, positively correlated.

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Definitions:

Capital Budgeting

The process of planning and managing a company's long-term investments in projects or assets to maximize profitability and growth.

Capital Investment Analysis

The process of evaluating and selecting long-term investments consistent with the firm's goal of wealth maximization.

Cash Payback Period

the duration required to recover the cost of an investment through cash flows generated by the investment.

Annual Net Cash Inflow

The net amount of cash that flows into a company in a year after all expenses and outflows have been subtracted from total inflows.