Instruction: For each statement, begin by answering whether the statement is true or false. If you think a statement is false, explain your answer in ONE or TWO SENTENCES. If you think a statement is true, no explanation is required.

1. According to prospect theory, individual investors are not always risk averse that they may be risk-seeking when they are faced with expected losses.

2. While options can be used to reduce systematic risk of stocks, they cannot reduce unsystematic risk of stocks because unsystematic risk can only be reduced through diversification.