2.The principle of diversification might stop working because of:

A. Ambiguity,

B. Firm specific factors,

C. Asymmetric information,

D. A and C.

3. If the CAPX1holds:

A. The slope of the SOIL should be positive,

B. Alphas (abnormal returns) should not be significantly different from zero,

C. Along the SOIL all assets will be correctly priced,

D. A, B and C.

4. The Kelly criterion is a dynamic portfolio strategy that seeks to maximize portfolios expected growth rate or portfolios geometric average return:

A. False,

B. True

5. Markowitzs principle of diversification:

A. Enters into play in the variance/standard deviation of the portfolio,

B. Depends on the co-movement between each pair of assets in the portfolio,

C. Works better when the coefficient of correlation is zero or negative,

D. All of the above.

7. The COIL /CAL is the investment opportunity set with maximum Sharpe ratio:

A. False

B. True

8. The two-fund separation theorem of Tobin states that rational investors should hold in equilibrium two invest mentfunds. One is a fund of treasuries and the other one the optimal market portfolio of risky assets. How much they will hold of each fund will depend on their degree of risk aversion.

A. True,

B. False.