Portfolio risk is reduced without sacrificing expected return by combining securities with:

• A. high standard deviations.
• B. low standard deviations.
• C. perfect correlation (i.e. correlation of +1).
• D. negative correlation*

Using ______ is one way for estimating expected returns and risk is to gather returns for historical returns and use them to estimate future risk and returns.

• A. the variance formula
• B. the standard deviation formula
• C. scenario analysis
• D. a time series of returns

If the Risk-free rate = 2%, Return on Market= 6%, Beta = 2, portfolio performance of 11% implies an Alpha of:

• A. -1%
• B. 0%
• C. +1%
• D. +3%