1. If inflation expectations increase, what would you expect to see happen to the returns required by investors in stocks and bonds? What effect would this affect stock and bond prices? Do you think that diversification would reduce the risk associated with a given portfolio of assets?
2. Could be have investments that could assume a zero risk? Which investment and why?
3. Distinguish between unsystematic and systematic risk. Under what circumstances are investors likely to ignore the unsystematic risk characteristics in a given investment?