Question

T/F

The tighter the probability distribution of its expected future returns, the lower the risk of a given investment as measured by its standard deviation.

Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk-averse.

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.

Diversification will not normally reduce the riskiness of a portfolio of stocks.

In portfolio analysis, we often use ex-post (historical) returns and standard deviations, even though we are interested in ex-ante (future) data)

The realized return on a stock portfolio is not the weighted average of the expected returns on the stocks in the portfolio.

Managers should make investments that increase their firm's risk relative to the market if those investments would increase the firm's expected rate of return sufficiently.

One key conclusion of the Capital Asset Pricing Model is that the value of an asset should be measured by considering only the expected return of the asset, assuming that the asset is held in a well-diversified portfolio.

According to the Capital Asset Pricing Model, investors are primarily concerned with portfolio risk, not the risks of individual stocks held in isolation.

If investors become less averse to risk, the slope of the Security Market Line (SML) will increase.

Answer 1

1.True. The tighter the probability distribution of its expected future returns, the lower the risk of a given investment as measured by its standard deviation. the tighter means having the high probability of happening thus tighter probability of expected future returns means high probability of happening

2. True. Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk-averse.

3. True. 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.

4. False. Diversification will not normally reduce the riskiness of a portfolio of stocks.

5. True. In portfolio analysis, we often use ex-post (historical) returns and standard deviations, even though we are interested in ex-ante (future) data)

6. false. The realized return on a stock portfolio is not the weighted average of the expected returns on the stocks in the portfolio.

7. True. Managers should make investments that increase their firm's risk relative to the market if those investments would increase the firm's expected rate of return sufficiently.

8. False. One key conclusion of the Capital Asset Pricing Model is that the value of an asset should be measured by considering only the expected return of the asset, assuming that the asset is held in a well-diversified portfolio.

9. True. According to the Capital Asset Pricing Model, investors are primarily concerned with portfolio risk, not the risks of individual stocks held in isolation.

10. False. If investors become less averse to risk, the slope of the Security Market Line (SML) will increase.

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