- (a) Fill in the blanks in the following sentences with the most appropriate words by writing oaly the answers with serial numbers in the answer-book : (1) Beta is an index of the risk of an asset. (ii) Diversification does not reduce risk when the returns on two securities are correlated. (1) A year ago, you purchased some stock with a beta of 1.5. You have not noticed how well your stock has done during the year, but you do know that the T-bill rate has remained at 7% throughout the year. As you are driving down the road, you hear on the radio that the market return was 19% during the year. Given only this information, your expected return on your stock should be % (iv) The market is efficient if the market value of an asset already reflects historical price and trading volume information. (1) The substantial evidence in favour of the randomness of stock price behavior suggests that represents useless market folklore. (b) Consider two stocks, A and B : A d d Desdation (DA