Question 21

If market is efficient, what portfolios should investors invest in

		Only stocks with low risk
		any sufficiently diversified portfolio based on investors preference
		Only stocks with high risk
		Only risk-free asset

When FED announces to increase interest rates? What should happen to stock market portfolio price?

1. Price should drop.

2. Price should Increase.

3. Price should drop by a magnitude closer to the drop seen in a 20-year zero-coupon bond than to that in a 1-year zero-coupon bond.

4. Price increase because expected return increases.

		1
		1, 3
		2, 4
		2