1. Which of the following statements is correct? Check all that apply.

The practice of diversification can effectively reduce an investors systematic risk.

A investors exposure to company-specific risk can be diversified away by holding approximately 40 randomly selected securities in an investors portfolio.

Systematic risk reflects the risk that remains after an investor has diversified his or her portfolio.

2. The phenomena and behaviors discussed above are based on the assumption that the majority of investors are risk-averse. According to the concept of risk aversion, Check all that apply.

Investors require a lower return for owning securities that exhibit greater risk.

Risk-averse investors require a greater return for owning securities that exhibit greater risk.

3. The financial performance of an investment is best expressed as a:

Dollar amount, since it reflects the timing of the investments return.

Percentage, as it ignores the timing of the return, such as one year or ten years.

Percentage, since it scales, or standardizes, the return earned from the investment by the investments size.

Dollar amount, since it clearly identifies the sum of money that can be spent by the owner of the investment.