Question 5

Which of the following risks are likely associated with high expected returns:

I. High idiosyncratic risk

II. The risk that return is highly correlated with business cycles

III. High systematic risk

		II and III only
		I, II, and III
		I and III only
		I and II only

Question 6

Suppose you live in a CAPM world. Market efficiency means:

		Todays price do not reflect yesterdays information
		Stock market return should be equal to bond market return
		All stocks should have the same expected returns
		High beta assets return should be higher than riskless assets return