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Analysis Intermediate:
Evaluating Risk
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1.
The coefficient of variation divides a securitys price mean by its standard deviation.
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True
False
False. The coefficient of variation divides a securitys standard deviation by its price mean.
2.
When choosing your investments, look for those that will give you the highest returns for your acceptable level of risk.
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True
False
True. This is one of the cornerstones of successful investing.
3.
A steep standard deviation curve means that _______.
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A securitys deviation is high
A securitys deviation is low
A securitys deviation has remained the same for a long time
A securitys deviation is low. When the curve is steep, the deviation is small compared to the height of the curve.
4.
If a stock has a beta of 2 and the market falls by 20 percent, the stock should _______.
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Fall by 20 percent
Fall by 40 percent
Rise by 40 percent
Fall by 40 percent. To calculate the rate at which a stock will fall, multiply the beta by the rate at which the market falls.
5.
Which of the following does the Capital Asset Pricing Model assume?
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Investors expect rewards for accepting an investments risk.
Investors prefer investments with a lot of risk.
Investors on average receive low average returns for accepting additional risk.
Investors expect rewards for accepting an investments risk. The CAPM assumes that investors expect to be compensated for risk.
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