CHAPTER 6th

RISK, RETURN, AND THE CAPITAL ASSET PRICES MODEL

True/False

Easy:

| |(6. 2) Payoff matrix |Answer: a |EASY | |[i]. |A benefit matrix reveals the set of possible rates of return on an purchase, along with their probabilities of event, and the | | |investment's expected level of come back as found by growing each result or " state" by simply its likelihood. | | | | | | |[ii]. |When adding a new inventory to an existing portfolio, the larger (or more positive) the degree of correlation between your new stock and | | |those already inside the portfolio, the less the extra stock is going to reduce the portfolio's risk. | | | | | | |[iii]. |Diversification can decrease the riskiness of the portfolio of stocks. | | | | | | |[iv]. |The realized return on a share portfolio is the weighted normal of the predicted returns around the stocks in the portfolio. | | | | | | |[v]. |The tighter the probability syndication of it is expected foreseeable future returns, the more the risk of a given investment as measured simply by | | |its regular deviation. | | | | | | |[vi]. |The coefficient of variation, worked out as the typical deviation of expected results divided by expected return, is a | | |standardized measure of the chance per unit of predicted return. | | | | | | |[vii]. |The standard deviation is a better measure of risk than the coefficient of deviation if the predicted returns from the securities being| | |compared differ drastically. | | | | | | |[viii]. |Risk-averse investors require bigger rates of return on investments in whose returns are really uncertain. | | | | | | |[ix]. |Companies should under no conditions take activities that increase their risk in accordance with the market, regardless how much individuals | | |actions would increase the firm's expected level of returning. | | | | | | |[x]. |One crucial conclusion with the Capital Advantage Pricing Style is that the benefit an asset needs to be measured simply by considering the two risk and| | |the expected go back of the advantage assuming that the asset is held in a well-diversified portfolio. The risk of the advantage held in | | |isolation...