1.

In an efficient market,

		Asset prices change immediately when information is made public
		All assets must have the same expected return
		All assets must have the same level of risk
		Stocks are often mispriced, but they are just as likely to be overpriced as underpriced so it averages out.

2.

Diversification tends to increase portfolio performance, because:

		Diverse portfolios have a higher expected return.
		Diverse portfolios have a lower volatility.
		The assets in a diverse portfolio are perfectly correlated.
		A diverse portfolio is more likely to have a stock inside of it that performs amazingly well.

3.

You are at a trading card convention, and observe that for a certain card, a dealer is willing to buy the card for $100, and sell the card for $120. At the same convention, a different dealer quotes a BID-ASK spread of $125-$140 for the very same card. Which statement is false:

		There is an arbitrage opportunity at the convention.
		The market for trading cards is an inefficient market.
		If the dealers ran into each other, they would happily trade with each other.
		If you had to pay a 2% tax when you bought the card, you could not make a profit from this situation after taking transactions costs into account.