Question 1, worth 6 points.

1. Total risk is A. the sum of systematic risk and idiosyncratic risk B. measured by the variance of stock returns C. Both A and B D. None of the above
2. _________ can be diversified away if one holds a large number of stocks in his/her portfolio A. Firm-specific risk B. Market risk C. Total risk D. None of the above
3. Which of the following represents firm-specific risk? A. industrial production falls B. interest rates change C. unemployment rate rises D. None of the above
4. Which of the following can be viewed as a proxy for the aggregate stock market portfolio? A. Value-weighted average returns of all stocks traded on the NYSE, AMEX, and NASDAQ B. S&P 500 index C. NYSE index D. All of the above
5. ___________ tend to vary more than one-for-one with the market portfolio. A. aggressive stocks B. defensive stocks C. neutral stocks D. None of the above
6. What is the implication of having a stock with beta = 1.2? A. If the market goes down by 10%, the stock return goes up by 12% B. If the market goes up by 10%, the stock return goes up by 12% C. If the market goes down by 10%, the stock return goes down by 10% D. If the market goes up by 12%, the stock return goes up by 12%