1. Two securities that have the same expected returns and standard deviation of returns would offer diversification benefits to investors under what condition?
a) Never.
b) Only if their returns are perfectly negatively correlated.
c) Only if their returns are less than perfectly positively correlated.
d) Only if their returns are perfectly positively correlated.
2. Stock A has an expected return of 6% and a standard deviation of returns of 15% while Stock B has an expected return of 8% and a standard deviation of returns of 25%. If the stocks are perfectly negatively correlated the expected return on the minimum variance portfolio consisting of these stocks is:
a) 6.75%.
b) 7.00%.
c) 20.00%.
d) Not computable because there is not enough information given.