In which of the following situations would get the largest reduction in risk by spreading your investment across two stocks?

1. In which of the following situations would get the largest reduction in risk by spreading your investment across two stocks?

A. The two stocks are perfectly correlated.

B. There is no correlation.

C. There is modest negative correlation.

D. There is perfect negative correlation.

2. As the number of stocks in a portfolio is increased:

A. Unique risk decreases and approaches zero. 

B. Market risk decreases. 

C. Unique risk decreases and becomes equal to market risk.

D. Total risk approaches zero.

3. If the covariance between stock A and stock B is 100, the standard deviation of stock A is 10% and that of stock B is 20%, what is the correlation coefficient between the two securities?

A. -0.50

B. +0.50

C. -1.00

D. +0.75

E. None of the above. 3 of 4

4. The correlation coefficient between stock A and the market portfolio is +0.60. The standard deviation of return of the stock is 30% and that of the market portfolio is 20%. What is the beta of the stock?

A. 0.90.

B. 1.50

C. 0.40

D. 0.25

E. None of the above.