3. Consider the following three statements: (1) if stocks are perfectly positively correlated, diversification wil not reduce risk. (2) The contribution of a stock to the risk of a well-diversified portfolio depends on its market risk (3) Publicly held companies should diversify their operations because investors benefit from diversification, Which of the above statements is incorrect? A) Statement (1) is incorrect B) Statement (2) is incorrect. C) Statement (3) is incorrect. D) None of the statements is incorrect. 4. Which of the following statements is correct? A) If the markets are efficient in the weak form, then prices reflect all information B) If the markets are efficient in the weak form, then prices will adjust immediately to public information. C) If markets are efficient in the weak form, then it is impossible to make consistently superior profits by using trading rules based on past returns D) None of the above statements is correct. 5. A firm has a capital structure which includes equity and debt. The payoffs at the end of the year to bondholders and equity holders depend on whether the company goes bankrupt. If the firm goes bankrupt, the bondholders receive 55 million and equity holders receive nothing. If the firm survives, the bondholders receive 100 million and equity holders receive 60 million. The firm's beta is zero, the risk free rate is 5 percent, and there is a 5 percent chance of bankruptcy. What is the total value of the firm's securities at the beginning of the year (to one decimal place)? A) none of the answers below B) 147.1 million C) 147.6 million D) 147.4 million 6. The finm ABC has overall firm beta of 1 and a debt beta of 0.25. The debt to equity ratio (D/E) is 0.25. What is the equity beta (to one decimal place)? A) 1.3 B) 1.2 Ci 0.9 D) none of the answers above