1. Which of the following statements is TRUE?

A) If you hold stock in a snow sled company and want to reduce rish through diversification, you should add shares of stock from a snow boots company rather than from a sunscreen company.

B) The best measure to use when comparing alternative investments is their annualized holding period returns.

C) The benifit from diversification is positively related to the correlation coefficient.

D) As you add stocks from different companies, we would expect total risk to go down because of the change in unsystematic risk.

2. Which of the following statements is TRUE?

A) Stocks typically have very predictable future cash flows whereas bonds do not.

B) The limited liability feature of corporate stocks increase the risk for shareholders.

C) Claims of lenders come before those of common stockholders.

D) You should sell stocks if you expect a bull market in stocks.