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Open ROADS Consultant - Strategic Dynamism

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NEW QUESTION: 1
Which of the following statements about portfolio theory is FALSE?
A. Assuming that the correlation coefficient is less than one, the risk of the portfolio will always be less than the simple weighted average of individual stock risks.
B. For a two-stock portfolio, the lowest risk occurs when the correlation coefficient is close to negative one.
C. When the return on an asset added to a portfolio has a correlation coefficient of less than one with the other portfolio asset returns but has the same risk, adding the asset will not decrease the overall portfolio standard deviation.
D. Risk aversion results in an upward sloping security market line (SML).
Answer: C
Explanation:
Explanation/Reference:
Explanation:
This statement misstates the principle of diversification and should read, "When the return on an asset added to a portfolio has a correlation coefficient of less than one with the other portfolio asset returns but has the same risk, adding the asset will decrease the overall portfolio standard deviation." Anytime the correlation coefficient is less than one, there are benefits from diversification. The other choices are true.

NEW QUESTION: 2

A. Option D
B. Option A
C. Option C
D. Option B
E. Option E
Answer: A,C,D


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