If a Portfolio Consists of Two Investments Which Have Perfectly

question 13

Multiple Choice

If a portfolio consists of two investments which have perfectly correlated returns,the portfolio standard deviation is:

• A)the sum of the products of the squared portfolio weights and the variances of the investment returns.
• B)the absolute value of the portfolio-weighted average of the standard deviations of the two investments.
• C)is the difference between the portfolio-weighted average of the standard deviations of the two investments.
• D)twice the product of the two portfolio weights and the covariance between the investment returns.

Calculate and interpret gross profit, income from operations, and profit margins.

Understand the principles underlying the calculation of gross and net profit margins.

Identify the differences between periodic and perpetual inventory systems.

Calculate gross profit, net profit, and profit margins from given financial information.

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Definitions:

Investment Turnover

A financial ratio comparing the sales revenue a company generates to its current investment in assets, indicating efficiency in using investments to produce sales.

Cost Of Capital

The rate of return that a company must earn on its investment projects to maintain its market value and satisfy its investors.

Return On Investment

A financial metric used to evaluate the profitability of an investment, calculated as the return divided by the cost of the investment.

Residual Income

The income that remains after all costs and expenses, including the cost of capital, have been subtracted from net income.