Analysis Intermediate: Evaluating Risk

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1.
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.
2.
If you are willing to accept heavy losses in your portfolio to gain high returns later on, you are risk-averse.
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False. If you are willing to accept heavy losses in your portfolio to gain high returns later on, you have a high tolerance for risk.
3.
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.
4.
The problem with standard deviation is that it is difficult to interpret by itself.
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True. That is why the coefficient of variation is used.
5.
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.