1. Which statement is true?

a) If you hold stock in a snow sled company and want to reduce risk through diversification, you should add shares of stock from a snow boots company rather than from a sunscreen company.

b) The best measures to use when comparing alternative investments is their annualized holding period returns.

c) The benefit from diversification is positively related to the correlation of coefficient.

d) As you add stocks from different companies, we would expect total risk to go down because of a reduction in systematic risk.

2. Which of the following statement is TRUE?

a) the current yield on a bond represents the capital gain part of the investor's total return.

b) Borrowers purchase bonds.

c) Ceteris paribus, bonds with higher YTM's would have higher prices.

d) If you anticipate a decline in interest rates, you should purchase long- term zero- coupon bonds.