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Corporate Finance, End Term

January 2025 term, 13 Apr 2025, Set QIM3

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Question 1

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Diversification works well if two investment opportunities always move in the opposite direction.

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A.
TRUE
B.
FALSE

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Diversification works well if two investment opportunities always move in the opposite direction. If a project has a negative beta with respect to the market, it means that it tends to go up when market goes down. Holding everything else constant, risk-averse investors would prefer to pay more for the assets that have higher market betas.