1) The practice of not putting all of your eggs in one basket is an illustration of ________.

A) variance

B) diversification

C) portion control

D) expected return

2) Which of the following classifications of securities had the largest range of annual returns over the period 1950-1999?

A) Large-company stocks

B) Long-term government bonds

C) Small-company stocks

D) 3-month U.S. Treasury bills

3) Historically, the ________ risk an investor is willing to accept the ________ the potential return for the investment

A) more, lesser

B) less, greater

C) more, greater

D) Historically, the risk/return tradeoff has not played out in any particular manner.

4) Which of the following statements is true about variance?

A) Variance describes how spread out a set of numbers or values is around its mean or average.

B) Variance is essentially the variability from the average.

C) The larger the variance, the greater the dispersion.

D) All of the above statements are true.

5) The primary benefit of diversification is:

A) an increase in expected return.

B) an equal reduction in risk and return.

C) a reduction in risk.

D) diversification has no real benefit; it is a shell game promoted by investment advisors who are the only real winners.