1A)

State i	Probability of State i	Actual Return of HCA
Boom	81 %	28 %
Bust	19 %	-1 %

Given the preceding information, calculate the standard deviation of HCA? (Answer as a percentage) (Round to 2 decimals)

a. 11.38 %

b. 13.67 %

c. 7.50 %

d. 8.52 %

e. 12.50 %

1B)

It is often said that you can reduce your investment risk by creating a portfolio of stocks rather than investing in a single stock. This concept is referred to as diversification. Diversification significantly reduces some component of the total risk (also referred to as diversifiable risk). What is the name of the basic risk concept that we can not reduce through diversification?

Non-systematic (unique) risk

Interest rate risk

Foreign exchange risk

Systematic (market) risk

Labor risk

ANSWER