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.
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.
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 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.
5.
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.