1. Consider the following five types of risk: (1) The risk of an oil explorer hitting oil (2) The risk of an oil company's revenues falling because the oil price falls as a result of weak demand (3) The risk of a pharma company failing to successfully develop a drug that is at its development stage (4) The risk of Google's revenues declining because of competition from Facebook (5) The risk of Google's revenues declining because of a downturn in the global advertising industry Which of the following statements is correct? A. Risks 1, 2 and 3 are diversifiable, the other risks are not diversifiable. B. Risks 1, 3 and 4 are diversifiable, the other risks are not diversifiable. C. Risks 1, 3 and 5 are diversifiable, the other risks are not diversifiable. D. Risks 2, 3 and 4 are diversifiable, the other risks are not diversifiable. E. None of the above 2. According to the CAPM, which has a higher expected rate of return: an individual stock with a beta of one or a diversified portfolio with a beta of one? A. The diversified portfolio. B. The individual stock. C. They have the same expected rate of return. D. Cannot tell, it depends on the market risk premium. E. Cannot tell, it depends on the market risk premium and the risk-free rate