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Exam 2 Solutions - Spring 2003 Exam 2 1 Select the...

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Spring 2003 Exam 2 1. Select the statement that is most correct . * A. I have correctly filled in my Name and UF ID# and have signed the front of this exam and I have correctly filled in and bubbled in my Name, UF ID#, and Exam Code on my scantron sheet. Therefore I should receive 5 points. B. I have failed to correctly fill in my Name and UF ID# and sign the front of this exam and/or I have failed to correctly fill in and bubble in my Name, UF ID#, and Exam Code on my scantron sheet. Therefore I should not receive 5 points. 2. Which of the following statements is most correct ? A. Portfolio diversification reduces the variability of the returns on the individual stocks held in the portfolio. B. If an investor buys enough stocks, he or she can, through diversification, eliminate virtually all of the non-market (or company-specific) risk inherent in owning stocks. Indeed, if the portfolio contained all publicly traded stocks, it would be riskless. C. The required return on a firm’s common stock is determined by its systematic (or market) risk. If the systematic risk is known, and if that risk is expected to remain constant, then no other information, including market information, is required to specify the firm’s required return. * D. A security’s beta measures its non-diversifiable (systematic, or market) risk relative to that of the market or an “average stock” within the market. E. A stock’s beta is less relevant as a measure of risk to an investor with a well- diversified portfolio than to an investor who holds only that one stock. 3. Which of the following statements is incorrect (least correct)? *
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