6. How many statements about return calculations are correct? Total stock return (Next period stock price - Current period stock price) current period stock price Total bond return = (Next period bond price - Current period bond price) / current period bond price Dividend payments contribute to stock returns. Coupon payments by bonds do not contribute to bond return. Your choice: a. one; b. two; c. three; d. four. 7. The principle of diversification tells us that: a. Making an investment in ten large stocks will eliminate all idiosyncratic risk. b. Making an investment in ten large stocks will eliminate all systematic risk. c. Spreading an investment across many highly correlated stocks is more effective in reducing idiosyncratic risks compared to spreading across less correlated stocks.. d. Holding a well-diversified portfolio will eliminate your exposure to systematic risk. e. Even if you hold each stock in the stock market, you are still exposed to systematic risks. 8. Which one of the following is an example of diversifiable risk? 1. Earthquake damages an entire town. II. The federal reserve changes interest rates. III. The Trade war between China and the U.S. IV. Toymakers are required to improve their safety standards. Your choice: a. I and II only. b. II and IV only. c. III and IV only d. I and IV only e. IV only 9. How many statements about beta are correct? I. Beta of an asset should be always smaller than 1. II. Beta of an asset is equal to the coefficient (slope) of the regression that regresses asset returns onto the returns of the market portfolio. III. Beta of a portfolio is a linear combination of individual asset's beta. IV. If an asset has a larger beta, then the idiosyncratic risk of this asset is larger Your choice: a. one; b. two; c. three; d. four