Question

QUESTION 5

Part A: which of the following is incorrect?

		a. we use standard deviation and Coefficient of Variation to measure the stand alone risk.
		b. The larger σ is, the bigger the probability that actual returns will be close to expected returns.
		c. Standalone risk is also the risk of a financial asset if the investor only holds one asset, as opposed to the risk of a financial asset held in a portfolio.
		d. standalone risk is the risk associated with a single operating unit of a company or asset. Standalone involves the risks created by a specific division or project, which would not exist if operations in that area were to cease.
		e.Most stocks are positively (though not perfectly) correlated with the market (i.e., ρ between 0 and 1). Combining stocks in a portfolio generally lowers risk.

Part B: Which of the following is incorrect?

		a. The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation.
		b. Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse
		c. Diversification will normally reduce the riskiness of a portfolio of stocks.
		d. In portfolio analysis, we often use ex post (historical) returns and standard deviations, despite the fact that we are really interested in ex ante (future) data.

Answer 1

5. (A) stand alone risk is the risk related to the holding one asset and it is not the risk associated with the standard deviation and coefficient of variation because standard definition is mostly related to total risk of the portfolio.

All the other statements are false

Correct answer will be option (A).

B. Correct answer will be option (B)risk averse investor require higher rate of return on investment whose return are highly uncertain and most investor are risk averse..

RISK aversion means a lower rate of return probability because investor want lower risk.