The Clearwater National Bank Is Planning to Set Up a New

Multiple Choice

The Clearwater National Bank is planning to set up a new branch.This new branch is anticipated to generate 5 percent of the total business of the bank after it is opened.The bank also expects the return for this branch to be 15 percent with a standard deviation of 5 percent.Currently the bank has a 10 percent rate of return with a standard deviation of 5 percent.The correlation between the bank's current return and returns on the new branch is expected to be -0.3.In this problem,the proposed new branch _______ overall risk exposure due to ______ effect.

A) increases;economies of scale
B) increases;economies of scope
C) reduces;convergence
D) reduces;geographical diversification
E) none of the options are correct