Question: The correlation coefficient between the return on the existing project and the return on a proposed foreign project is 1. The returns on the existing

The correlation coefficient between the return on the existing project and the return on a

proposed foreign project is 1. The returns on the existing project and the new project are

equal. The existing project has a lower standard deviation than the proposed project. If

the proposed project is adopted, the variance of the firm's overall returns will:

decrease

none of the options listed

need additional information

increase

decrease or increase, depending on the exact size of the returns and standard deviations

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