Analysis Intermediate: Evaluating Risk

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1.
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.
2.
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.
3.
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.
4.
A security with a high coefficient of variation is highly volatile.
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True. A security with a high coefficient of variation is highly volatile.
5.
A steep standard deviation curve means that _______.
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A securitys deviation is low. When the curve is steep, the deviation is small compared to the height of the curve.