Portfolio of two risky stocks with no diversification

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1a) Suppose that you have a portfolio of two risky stocks with no diversification. What is a possible reason for the lack of diversification?

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.

1b) The historical average return relationship between securities is (in ascending order):

A) Lowest return is corporate bonds, government bonds, Treasury bills, small company stocks, highest return all common stocks.

B) Lowest return is Treasury bills, small company stocks, corporate bonds, government bonds, highest return all common stocks.

C) Lowest return is Treasury bills, corporate bonds, government bonds, all common stocks, highest return small company stocks.

D) Lowest return is Treasury bills, government bonds, corporate bonds, all common stocks, highest return small company stocks.

E) There is no ordering.

Reference no: EM132345930

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