# ch06 - Chapter 6 Return and Risk Basics TRUE-FALSE...

This preview shows pages 1–3. Sign up to view the full content.

Chapter 6 Return and Risk Basics TRUE-FALSE QUESTIONS T 1. If standard deviation is used to measure the risk of stocks, one problem that arises is the inability to tell which stock is riskier by looking at the standard deviation alone. F 2. The variance or standard deviation measures the risk per unit of return. F 3. The variance gives units of measure that match those of the return data. T 4. A higher coefficient of variation indicates more risk per unit of return. T 5. A low-risk investment will have a lower required return than a high-risk investment. T 6. Standard deviation is stated in the same units of measurement as those of the data from which they were generated. F 7. The variance of a portfolio would be calculated by finding the variances of the individual components of the portfolio and finding the weighted average of those variances. T 8. Diversification occurs when we invest in several different assets rather than just a single one. F 9. The benefits of diversification are greatest when asset returns have positive correlations. T 10. Standard deviation is the square root of the variance. F 11. The coefficient of variation is a measure of total return on a stock. F 12. Unsystematic risk is the risk that cannot be eliminated through diversification. T 13. Although gold is a risky investment by itself, including gold in a stock portfolio can make the portfolio less risky.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
F 14. If Stock A has a higher standard deviation than Stock B, it will also have a greater coefficient of variation. F 15. If the expected return is 10%, the standard deviation is 3%, about 68% of the time returns will be expected to fall between 10% and 13%. T 16. In general, large company stocks are less risky than small company stocks. T 17. Long-term corporate bonds tend to have a lower standard deviation than corporate stocks. T 18. Future returns and risk cannot be predicted precisely from past measures. F 19. A stock that went from \$40 per share at the beginning of the year to \$45 at the end of the year and paid a \$2 dividend provided an investor with a 14% return. F 20. When we speak of ex-ante returns, we are referring to historical information or data. T 21. In general, securities with higher historical standard deviations have provided higher returns. F 22. Research suggests that a portfolio of 20 or 30 different stocks has eliminated most of the portfolios systematic risk. T 23. Research suggests that a portfolio of 20 or 30 different stocks has eliminated most of the portfolios unsystematic risk. T 24. A portfolio is any combination of financial assets or investments. T 25. The expected rate of return on a portfolio is the weighted average of the expected returns of the individual assets in the portfolio. T 26. The historical percentage return for a single financial asset is equal to any dividends received plus the difference between the selling price and the purchase price, all divided by the purchase price.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern