1. According to Modern Portfolio Theory investors get paid for taking

a. Systemic risk

b. Non-systemic risk

c. Both

2. In a market where transaction costs are low and trading volumes are high, providing ample liquidity for investors It is LIKELY that:

a. Traders will find it hard to make use of their information.

b. Traders will find it easy to trade and their trading will make the market less informationally efficient

c. Traders will find it easy to trade and their trading will make the market more informationally efficient.

3. Which of the following is NOT a primary objective of financial regulation?

a. Minimize agency problems in the financial markets

b. Ensure that financial markets are fair and orderly

c. Ensure that investors in the stock market achieve a rate of return that is at least equal to the risk free rate of return.

4. Your client grows concerned when you recommend 2 "risky" investments for his portfolio.

"Look at the size of those standard deviations!", he says. "One of those is risky enough, if l own them both I'm taking on even more risk." He is wrong UNLESS:

a. The correlation among the 2 investments are low

b. The correlation among the 2 investments is very high (like 1)

c. The correlation among the investments is negative

d. The correlation among the investments is 0