1: Which of the following statements is TRUE regarding RISK?

A) Combining stocks with a correlation coefficient of +0.7 would result in greater risk reduction than combining stocks with a correlation coefficient of-0.7.

B) Ceteris paribus, a higher standard deviation reflects less uncertainty.

C) Market risk can be reduced through diversification.

D) If you hold stock in a snow sled company and want to reduce risk through diversification, you should add shares of stock from a swim suit company rather than from a snow boots company

2: Which of the statements below is TRUE regarding CAPITAL STRUCTURE?

A) Capital structure deals with the liability-side of the balance sheet.

B) According to the Static Theory of Capital Structure, the optimal capital structure is the one at which the company's weighted average cost of capital ("WACC) is at a maximum.

C) Adding debt to the capital structure will always make shareholders worse off.

D) Financial leverage is the degree to which a firm utilizes equity financing.