Analysis Intermediate: Evaluating Risk

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1.
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.
2.
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.
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.
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.
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.