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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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. This is one of the cornerstones of successful investing.
3.
If a stock has a beta of 2 and the market falls by 20 percent, the stock should _______.
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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.
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.
Which of the following does the Capital Asset Pricing Model assume?
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Investors expect rewards for accepting an investments risk. The CAPM assumes that investors expect to be compensated for risk.