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 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.
3.
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.
4.
If a security is more volatile than the market, it has a beta _______.
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Greater than 1. A beta greater than 1 indicates that a stock is more volatile than the overall market.
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.