28. Which of the following will reduce the required return on an investment?

	a.	an increase in beta and a reduction in the Treasury bill rate
	b.	an increase in the Treasury bill rate and a decrease in beta
	c.	a decrease in the Treasury bill rate and a decrease in beta
	d.	an increase in the Treasury bill rate and an increase in beta

29. For a security to help diversify a portfolio, the asset

	a.	must generate a greater return than the average return on the portfolio
	b.	should not be sensitive to changes in security prices
	c.	should have a return that is negatively correlated with the return on other securities in the portfolio
	d.	must be a debt instrument if the portfolio consists primarily of stocks

30. Components of the capital asset pricing model include

	a.	a stock's market price
	b.	the standard deviation of a stock's return
	c.	the rate on a risk-free security
	d.	the investor's need for income versus capital gains

31. Sources of risk include

1. fluctuations in stock prices

2. inflation

3. possibility of bankruptcy

	a.	1 and 2
	b.	1 and 3
	c.	2 and 3
	d.	all three

32. A diversified portfolio reduces

	a.	unsystematic risk
	b.	systematic risk
	c.	purchasing power risk
	d.	interest rate risk

33. The standard deviation measures

	a.	the dispersion around an average value
	b.	systematic risk
	c.	unsystematic risk
	d.	the security's highlow prices

34. A beta coefficient is a measure of the volatility of

	a.	a firm's position in its industry
	b.	a stock's return relative to the market return
	c.	aggregate market stock prices
	d.	a firm's earnings

35. A beta coefficient for a stock of 0.8 implies

	a.	an 8% return on the market will cause the return on this stock to be 10%
	b.	an 8% decrease in the market will cause the return on this stock to be 8%
	c.	a return of 10% on the market will cause the return on this stock to be 8%
	d.	a return of 10% on the market will cause the return on this stock to be 8%

36. An investor may reduce risk by

1. selecting low beta stocks

2. constructing a diversified portfolio

3. selecting high beta stocks

	a.	1 and 2
	b.	1 and 3
	c.	2 and 3
	d.	only 1