uestion
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1. Which of the following statements is TRUE?
A. Diversification over a large number of assets completely eliminates risk.
B. Diversification can reduce the volatility of a portfolio only when asset returns are negatively correlated.
C. Standard deviation and beta are both measures of systematic risk.
D. Companies that sell durable goods tend to have higher betas than companies that sell necessity goods.
2.Which of the following statements are TRUE?
A. According to the CAPM, two stocks with the same volatility can have different expected returns.
B. According to the CAPM, the expected return of a security cannot be lower than the risk-free rate because investors require compensation for risk.
C. Stock A has expected return 10% and standard deviation 15%. Stock B has expected return 13% and standard deviation 14%. No investor will ever buy stock A.
D. All of the above.
3.A security has an expected return of 13%. The risk-free rate is 5% and the market risk premium is 5%. What is the security’s beta?
A. 0.8
B. 1.3
C. 1.6
D. None of the above.