1. If the expected rate of return for a particular investment, as seen by the marginal investor, exceeds its required rate of return, we should soon observe an increase in demand for the investment, and the price will likely increase until a price is established that equates the expected return with the required return.

Select one:

TrueFalse

• 2. Diversification works because:

Select one:

a. Systematic risk worksb. Market risk can be dramatically reduced if not eliminatedc. Forming stocks into a portfolio guarantees a positive rate of return on investmentd. Individual assets may fluctuate in price but these fluctuations tend to offset one another in a portfolio.e. Diversification does not work