Determination of true and false questions

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Reference no: EM1352764

The realized portfolio return is the weighted average of the relative weights of securities in the portfolio multiplied by their respective expected returns.

a. TRUE
b. FALSE

Answer:
Market risk refers to the tendency of a stock to move with the general stock market. A stock with above‑average market risk will tend to be more volatile than an average stock, and it will definitely have a beta which is greater than 1.0.

a. TRUE
b. FALSE

Answer:
Diversifiable risk, which is measured by beta, can be lowered by adding more stocks to a portfolio.

a. TRUE
b. FALSE

Answer:
A security's beta measures its nondiversifiable (or market) risk relative to that of most other securities.

a. TRUE
b. FALSE

Answer:
A stock's beta is more relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only one stock.

a. TRUE
b. FALSE

Answer:
A firm cannot change its beta through any managerial decision because betas are completely market determined.

a. TRUE
b. FALSE

Answer:
The required return on a firm's common stock is determined by the firm's market risk. If its market risk is known, and if it is expected to remain constant, the analyst has sufficient information to specify the firm's required return.

a. TRUE
b. FALSE

Answer:
The slope of the SML is determined by the value of beta.

a. TRUE
b. FALSE

Answer:
If the returns of two firms are negatively correlated, then one of them must have a negative beta.

a. TRUE
b. FALSE

Answer:
A stock with a beta equal to -1.0 has zero systematic (or market) risk.

a. TRUE
b. FALSE

Answer:
It is possible for a firm to have a positive beta, even if the correlation between the returns of it and another firm are negative.

a. TRUE
b. FALSE

Answer:
In estimating a security's beta coefficient, the rise-over-run calculation results in a ratio. If all the observation points for the security's returns and the market's returns do not fall on a straight line then the ratio is subject to change.

a. TRUE
b. FALSE

Reference no: EM1352764

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