Analysis Intermediate: Evaluating Risk

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1.
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.
2.
The degree to which a securitys price moves up and down is known as its volatility.
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True. Volatility refers to how much the price fluctuates.
3.
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.
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.
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.