MBA Corporate Finance – Short Question Assignment #1

1.         If you have a portfolio of two risky stocks which turns out to have no diversification benefits.  The reason you have no diversification is:

A)        the returns are too small

B)        the returns move perfectly opposite of one another

C)        the returns are too large to offset

D)        the returns move perfectly with one another

E)         the returns are completely unrelated to one another

Answer:  E)      the returns are completely unrelated to one another

As the returns are unrelated, there is no need of diversification.

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