If the returns on these assets are less than perfectly positively correlated with the fund's other assets,

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If the returns on these assets are less than perfectly positively correlated with the fund's other assets, then the addition of such investments as foreign stocks and precious metals would lower the overall risk of the portfolio. In other words, if these assets have a lower beta than the fund's portfolio, then adding them will lower the beta of the fund. However, the returns on foreign stocks and precious metals are typically quite volatile, and such assets are generally not suitable for meeting current payment obligations.

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Financial Management Theory And Practice

ISBN: 9780324259681

11th Edition

Authors: Eugene F Brigham, Michael C Ehrhardt

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