1. Energy utilities are, most often, defensive rms, while airlines are, most often, cyclical rms. The single index model will generally ___________ the diversication benet of adding an energy stock to a portfolio and generally _____________ the diversication benet of adding an airline stock to a portfolio.

(a) underestimate; underestimate

(b) underestimate; overestimate

(c) overestimate; underestimate

(d) overestimate; overestimate

(e) The answer depends on the current makeup of the portfolio

2.

Which of the following securities would not provide a diversication benet to a portfolio consisting of Toyota stock?

(a) Honda stock

(b) Toyota bonds

(c) Japanese government-issued bonds

(d) None of the above, as all of these would provide a diversication benet