HW 5
1
Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse.
Selected Answer:
True
Correct Answer:
True
2
When adding a randomly chosen new stock to an existing portfolio, the higher (or more positive) the degree of correlation between the new stock and stocks already in the portfolio, the less the additional stock will reduce the portfolio's risk.
Selected Answer:
True
Correct Answer:
True
3
The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation.
Selected Answer:
False
Correct Answer:
False
4
If a stock's market price exceeds its intrinsic value as seen by the marginal investor, then the investor will sell the stock until its price has fallen down to the level of the investor's estimate of the intrinsic value.
Selected Answer:
True
Correct Answer:
True
5
If an investor buys enough stocks, he or she can, through diversification, eliminate all of the market risk inherent in owning stocks, but as a general rule it will not be possible to eliminate all diversifiable risk.
Selected Answer:
False
Correct Answer:
False
6
If markets are in equilibrium, which of the following conditions will exist?
Selected Answer:
Each stock's expected return should equal its required return as seen by the marginal investor.
Correct Answer:
Each stock's expected return should equal its required return as seen by the marginal investor.
7
You are considering investing in one of the these three stocks:
Stock
Standard Deviation
Beta
A
20%
0.59
B
10%
0.61
C
12%
1.29
If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it...