Analysis Intermediate: Evaluating Risk

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1.
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.
2.
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.
3.
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.
4.
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.
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.