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

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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.
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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.
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