1. Which of the following statement is incorrect?

a. Most of the answers are correct except one.

b. Diversification by holding more than one asset with different risk characteristics can reduce the risk of a portfolio.

c. If two investments have the same expected return, investors prefer the riskiest alternative.

d. In order to keep the total return of a stock equal to 100 percent, the income component for that stock could be positive or zero.

e. The normal distribution is a symmetric distribution that is completely described by its mean and standard deviation.

2. Which of the following statements is correct?

a. Given the historical information in the chapter, the beta of a small stock should be greater than the beta of a corporate bond.

b. All the answers are correct.

c. The best measure of assessing systematic risk within an investment is its variance.

d. The coefficient of variation divides the variance of the returns of an asset by the expected rate of return of that asset.

e. Investors can diversify away risk that is unique to the individual assets is called systematic or nondiversifiable risk.