Analysis Intermediate: Evaluating Risk

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1.
The lower the risk of an investment, the higher its expected return.
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False. The lower the risk of an investment, the lower its expected return. To get high returns, you must accept greater risk.
2.
Beta measures the volatility of a security as compared to another security.
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False. Beta measures the volatility of a security as compared to the overall market.
3.
The coefficient of variation divides a securitys price mean by its standard deviation.
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False. The coefficient of variation divides a securitys standard deviation by its price mean.
4.
If a security has a high standard deviation, its volatility is low.
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False. If a security has a high standard deviation, its volatility is high.
5.
Your risk tolerance depends on your investment goals.
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True. Different investment goals require that you tolerate different levels of risk. For example, if you want to make a killing in the market overnight, you may need to have a very high tolerance for risk.