1. Distinguish between total risk, systematic risk and unsystematic risk? Give two examples for each.
2. How do you define the correlation of +0.30, 0, and 0.70 between two stocks?
3. Why does the portfolio risk go down when you include more financial assets in a portfolio? Why does it happen? Show with the help of a graph.
4. The covariance between XYZ stock and the S&P 500 is 0.05. The standard deviation of the stock market is 18. What is the beta of XYZ?
5. Assume that you have invested in two stock A and B. Stock A has a standard deviation of return of 10 percent. Stock B has a standard deviation of return of 20 percent. The correlation coefficient between the two stocks is 0.25. If you invest 70 percent of your funds in stock A and 30 percent in stock B, what is the standard deviation of your portfolio?