1. Which of the following statements about beta and risk is correct??
a. A security's beta measures its diversifiable (systematic, or market) risk relative to that of other securities.
b. If two stocks have the same standard deviation and the correlation coefficient between the returns of two stocks equals zero, an equally weighted portfolio of the two stocks will have a standard deviation equal to that of the individual stocks.
c. Combining stocks with perfectly positively correlated stock returns into a portfolio is less risky than holding an individual stock since the portfolio will benefit from diversification.
d. 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 one stock.
e. If the returns of two firms are negatively correlated, one of them must have a negative beta.
2. The probability distribution of the payoffs on an investment refers to a _____.
a. measure of the extent to which the payoffs move with the capital market
b. standardized measure of the risk per payoff
c. measure of the tightness, or variability, of a set of payoffs
d. listing of all possible outcomes with a chance of occurrence assigned to each outcome
e. listing of the degree of relationship between the probabilities of two payoffs