Does random diversification increase or decrease the variance of a portfolio? What role do events play in the actual return of a portfolio? Is this statement true if the event is expected, it is already reflected in the stock price? Explain. What risk can be diversified away? Beta measures what form of risk? If you have a three stock portfolio and all three stock have betas of 2.0 or more what is the beta of the portfolio? Less than 1, between 1 and 1.99 --- or 2 or more? What do companies use the weighted average cost of capital for? For the same corporation, is a weighted average cost of capital of 8.5% better or worse than a 9.5%? For any corporation, what is the most costly form of capital for that corporation? Debt or Equity. What does beta measure? Is a beta of 2.0 or 1.7 more risky?

2.XYZ Company has a low risk division and a high risk division. If XYZ Company does not use a divisional cost of capital, which division will get the most funding?