1. The underlying principles of portfolio theory include:

A. diversifying business-specific risk away.

B. getting the highest available return for the amount of risk the investor is comfortable with.

C. basing decisions on stocks' risk/return characteristics in a portfolio context rather than on a stand-alone basis.

D. All of these choices are correct.

2. A portfolio is a collection of:

A. financial and non-financial assets in the market.

B. investment assets held by an investor.

C. financial assets and liabilities of a company.

D. all risk-free assets in the market.

3. In general, investments yielding higher returns will have:

A. lower tax rates.

B. higher dividend payments.

C. higher risk.

D. lower standard deviations.

4. Investors don't diversify entirely with negative beta stocks because:

A. they're not as desirable or exciting as high beta stocks on which one can make a lot of money.

B. they are generally poor investments otherwise.

C. there aren't very many of them around.

D. All of these choices are correct.

5. The risk remaining after extensive diversification is primarily:

A. standard deviation risk.

B. systematic risk.

C. coefficient of variation risk.

D. unsystematic risk.