In order to benefit from diversification, the returns on assets in a portfolio must:
A. be perfectly negatively correlated.
B. have the same idiosyncratic risks.
C. be perfectly positively correlated.
D. positively correlated but not perfectly.
Answer: D
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Discuss why saving and investing entails risk. What is the reward for bearing risk? Explain how income taxes affect the returns to risk bearing and its impact on overall risk taking and innovation
What will be an ideal response?
In order to change the money supply, the Fed might use all of the following tools except:
A. discount window. B. reserve requirement. C. open market operations. D. deficit spending.
When government increases a fixed tax, consumption schedule
a. shifts downward in a parallel manner. b. shifts upward in a parallel manner. c. becomes horizontal. d. becomes vertical.
Even when people know the purchasing power of the currency is declining, they continue to use the currency because
A. its value is still predictable. B. it still has some intrinsic value. C. the return of holding currency is always higher than the returns of all other assets. D. they have no other choice.