Question 5 Why are some risks diversifiable and some non-diversifiable? Give an example of each. Question 6 BBG stock has a beta of 0.86 and an actual expected return of 9.51 percent. The risk-free rate of return is 3.26 percent and the market rate of return is 11.14 percent. Which one of the following statements is true given this information? A. BBG stock is correctly priced. B. The return on BBG stock will graph below the security market line. C. The expected return on BBG stock based on the capital asset pricing model is 9.88 percent. D. BBG stock has more systematic risk than the overall market. E. BBG stock is underpriced. Question 7 What are the arithmetic and geometric average returns for a stock with annual returns of 11 percent, 14 percent, -2 percent and 6 percent? A. 8.25%; 8.15% B. 8.25%; 7.89% C. 7.07%; 7.25% D. 7.25%; 8.15% E. None of the above option is true Question 8 A portfolio consists of $12,000 of stock K and $23,000 of stock L. Stock K will return 14 percent in a booming economy and 5 percent in a normal economy. Stock L will return 10 percent in a booming economy and 6 percent in a normal economy. The probability of the economy booming is 22 percent. What is the expected rate of return on the portfolio if the economy is normal? A. 5.59% B. 5.62% C. 5.66% D. 5.71% E. None of the above option is true