Which of the following statements concerning financial risk is false? A. Generic

Question

Which of the following statements concerning financial risk is false?

A.  Generically, financial risk is related to the probability of a return that is less than expected.
B. If the returns on two investments move in unison (are perfectly positively correlated), combining the two into a portfolio will lower risk.
C. If the returns on two investments move in unison (are perfectly positively correlated), combining the two into a portfolio will not affect risk.
D. In the real world, it is not possible to create a riskless portfolio because all investment returns, to a greater or lesser extent, move with the overall economy.
E. Assume you know for certain that an investment will return negative 10 percent. (In other words, the probability of a negative 10 percent return is 100 percent.) Although the expected return is negative, the investment is riskless.

Which of the following statements concerning financial risk is false?

Explanation / Answer

(C) The statement made is false because if the two investments are put together in a single portfolio whose return are unison then there would be a bright chance of a positive or a negative return as every investment happens within the economy. So if the expected return falls then it will affect the risk.

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