1. List the five steps in the risk management process (in order) and describe each one in at least one sentence: (5 pts.)

1. ________________________________________________________________________
2. ________________________________________________________________________
3. ________________________________________________________________________
4. ________________________________________________________________________
5. ________________________________________________________________________

2. The following is the probability distribution of rate of return for a particular stock: (5 pts.)

Rate of Return	Probability
20%	0.30
5%	0.40
-10%	0.30

1. What is the expected return of this stock?

2. What is the standard deviation of the expected return?

3. What is the confidence interval of the expected return within one standard deviation? Within two standard deviations?

3. Name three characteristics which distinguish a futures contract from a forward contract:

1. ________________________________________________
2. ________________________________________________
3. ________________________________________________

4. Answer the following questions regarding risk & diversification:
   1. Define diversification.

2. What is the benefit of diversification?

3. What is the difference between diversifiable risk and non-diversifiable risk?

4. Give 1-2 examples each of risk factors of diversifiable and non-diversifiable risk.
5. Define the riskless asset.