Security A's expected return is 10 percent while the expected return of B is 14 percent. The standard deviation of A's returns is 5 percent, and it is 9 percent for B. An investor plans to invest equal amounts in A and B. Which of the following statements is true about this portfolio consisting of stock A and stock B.

a.	The risk of the portfolio is equal to 7 percent.
b.	The lower the correlation of returns between the two stocks, the higher the portfolio's risk.
c.	The risk of the portfolio is primarily dependent on the utility function of the investor.
d.	The higher the correlation of returns between the two stocks, the higher the portfolio's risk.

2. Which of the following is not an example of a source of systematic risk?

a.	interest rate changes
b.	foreign competition with an industry's products
c.	changes in the overall economic outlook
d.	changes in the inflation rate

3. The security market line

a.	is defined as the slope of a line relating an individual security's return to the returns of other securities in that firm's primary industry.
b.	provides a picture of the risk-return tradeoff required by diversified investors considering various risky assets.
c.	has as its slope the beta of the security
d.	none of these answers are correct.

4. Beta is defined as:

a.	a measure of volatility of a security's returns relative to the returns of a broad-based market portfolio of securities.
b.	the ratio of the variance of market returns to the covariance of returns on a security with the market
c.	the inverse of the slope of the security regression line
d.	all of these answers are correct

5. A beta value of 0.5 for a security indicates

a.	the security has average systematic risk
b.	the security has above-average systematic risk
c.	the security has no unsystematic risk
d.	the security has below-average systematic risk

6. The most relevant risk that must be considered for any widely traded individual security is its ____.

a.	unsystematic risk
b.	standard deviation
c.	covariance risk
d.	systematic risk