QUESTION 3

1. When adding another security to the portfolio, and a goal of reducing risk, we should consider:

   	a.	adding one which is negatively correlated, as it will lower the standard deviation of the portfolio.
   	b.	adding one which is positively correlated, as it will lower the standard deviation of the portfolio.
   	c.	adding one which is negatively correlated, as it will raise the standard deviation of the portfolio.
   	d.	adding one which is positively correlated, as it will raise the standard deviation of the portfolio.

QUESTION 4

1. The efficient frontier:

   	a.	represents that set of portfolios that has the minimum return for every given level of risk or the maximum risk for every level of return.
   	b.	the easiest and quickest method of deciding which securities should be part of a portfolio.
   	c.	the hardest and longer method of deciding which securities should be part of a portfolio, but guaranteed to achieve expected returns.
   	d.	represents that set of portfolios that has the maximum return for every given level of risk or the minimum risk for every level of return.

QUESTION 5

1. Consider Problem 1 on p. 25 of this reading. Compute the expected return of Lauren Labs.

   	a.	5%
   	b.	9%
   	c.	11%
   	d.	14%