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There are FOUR questions in this section. Candidates MUST answer ALL questions. Question 1 a) Define diversification and explain its effects on the systematic and unsystematic risk. (5 marks) b) Raisya intends to buy the ordinary share of Telaga Jerneh Berhad. The possible returns for the company's share next year are as follows: State of economy Probability of state of economy Return if state of economy occurs Boom Growth Normal 0.20 0.30 0.50 20% 15% 10%