6. We use variance (or standard deviation) to measure volatility and use volatility to characterize risk. Which of the following is correct? (A) By mixing many stocks and bonds in a portfolio, we can reduce variance to zero. (B) Portfolio risk is independent of how we mix the assets. (C) The total risk in a risky asset seems to have two components, and only one component can be easily diversified away. (D) It is possible that variance is negative in some cases. 7. Suppose the proper discount rate for Garco's stock is 8%, and it is expected to pay a dividend of S0.7 next year. If Garco's dividend is expected to grow at a constant annual rate of 1%. What should be Garco's stock price today? (A) P-S10 (B) P-$8.75 (C) P - $10.10 (D) P-S10.20 9. Suppose ry=2%; market risk premium RPM = 6%; The historical return on Arco stock is Perce = 20%. What is Arco stock's beta? (A) B - 2 (B) B = 3 (C) B = 4.5 (D) B = 3.67 10. BlueSkies stock has a beta equal to 0.2; RedSkies stock has a beta equal to 1.4. Which stock is riskier? (Ignore their unique risk) (A) BlueSkies stock is riskier (B) RedSkies stock is riskier (C) They may be equally risky (D) The given information is insufficient to determine which one is riskier