EOL2
True/False
Indicate whether the statement is true or false.
____
1.
If we develop a weighted average of the possible return outcomes, multiplying each outcome or "state" by its
respective probability of occurrence for a particular stock, we can construct a payoff matrix of expected re
turns.
____
2.
One key result of applying the Capital Asset Pricing Model is that the risk and return of an individual security
should be analyzed by how that security affects the risk and return of the portfolio in which it is held.
____
3.
Businesses earn returns for security holders by purchasing and operating physical assets. The relevant risk of
any physical asset must be measured in terms of its effect on the risk of the firm's securities.
____
4.
A
portfolio
with a beta of minus 2 has the same degree of risk to its holder, relative to the market, as a portfo
lio with a beta of plus 2. However, the holder of either portfolio could lower his or her risk exposure by buy
ing some "normal" stocks.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
5.
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 Spring '10
 SMITH
 Capital Asset Pricing Model, riskfree rate, Stock Y

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