Introduction Finance

Question 1
(5 points) By simply increasing the number of assets (e.g., assets > 30) in any portfolio, you can diversify your exposure to specific/idiosyncratic risk.
False.
True.
Question 2
(10) You have an equally weighted portfolio that consists of equity ownership in three firms. Firm A is trading at $23 per share and has a beta of 1.15; Firm B is trading at $16 per share with a beta of 1.60; Firm C is trading at $76 per share with a beta of 0.85. Assume a risk free rate of 2% and market return of 7%. If each stock has a standard deviation of 40% and the stocks have a correlation of 0.20 with each other, your portfolio's expected return is closest to
7%
10%
5%
8%
Question 3
(10 points) You have a portfolio that consists of equity ownership in three firms. You own 200 shares of Euro General Stores (EGS), 450 shares of Fuerte Steel (FS) and 350 shares of Bamboo Flooring (BF). Their current share prices are $62, $73, and $12, respectively. What is the weight of FS in your portfolio? (No more than two decimals in the percentage weight, but do not enter the % sign.)
Answer for Question 3

Question 4
(10 points) With everyone nervous about their investments after the recent financial crisis, suppose a new firm, Safety Net Insurance (SNI), emerges to sell people insurance against poorly performing markets in exchange for an annual premium. As an investor in SNI, you would expect this company's share to have a beta that is:
Close to zero.
Negative.
Positive.
Question 5
(10 points) Suppose there are three securities (A,B, and C) to choose from to create your portfolio. Next year the economy will be in an expansion, normal, or recession state with probabilities 0.30, 0.50, and 0.20, respectively. The returns (%) on the securities in these states are as follows: Security A {expansion = +8, normal = +7, recession = +2}; Security B {-1, -1, +5}; Security C {+14, +7, -8}. You are considering 4 potential portfolios of these 3 securities, with the following