1. The _____________ is the covariance divided by the product of the standard deviations of the returns of each fund.

1. Covariance
2. Correlation coefficient
3. Standard deviation
4. Reward- to-variability ratio

2.Risk that can be eliminated through diversification is called ______ risk.

1. Unique
2. Firm-specific
3. Diversifiable
4. All of the above

3.Diversification is most effective when security returns are _________.

1. High
2. Negatively correlated
3. Positively correlated
4. Uncorrelated

4.The term complete portfolio refers to a portfolio consisting of _________________.

1. The risk-free asset combined with at least one risky asset
2. The market portfolio combined with the minimum-variance portfolio
3. Securities from domestic markets combined with securities from foreign markets
4. Common stocks and bonds

5.You are considering adding a new security to your portfolio. To decide whether you should add the security, you need to know the security's:

1.Expected return

2.Standard deviation 3.Correlation with your portfolio

1. 1 only
2. 1 and 2 only
3. 1 and 3 only
4. 1,2 and 3