Reference no: EM132619686

Problem 1: The covariance between the returns on two stocks equals the correlation coefficient multiplied by the standard deviations of the two stocks. (true/false)

Problem 2: The portfolio risk that cannot be eliminated by diversification is called market risk.(True/False)

Problem 3: Unique risk is also called - choose one: (a)systematic risk (b) non-diversifiable risk (c) firm-specific risk (d) market risk.

Problem 4: As the number of stocks in a portfolio is increased -> choose one below.

(a) unique risk decreases and approaches zero.

(b) market risk decreases.

(c) unique risk decreases and becomes equal to market risk.

(d) total risk approaches zero.

Problem 5: If the average annual rate of return for common stocks is 11.7 percent, and 4.0 percent for U.S. Treasury bills, what is the average market risk premium?

Problem 6: Florida Company (FC) and Minnesota Company (MC) are both service companies. Their stock returns for the past three years were as follows: FC: -5 percent, 15 percent, 20 percent; MC: 8 percent, 8 percent, 20 percent. Calculate the mean return for each company( MC and FC)

Problem 7: Most investors dislike uncertainty. (True/False)

Problem 8: The distribution of daily returns over short periods for stocks is more closely related to the normal distribution than the lognormal distribution. (True/False)

Problem 9: The Sharpe ratio is defined as? -> Need the formula

Problem 10: Underpriced stocks will plot below the security market line (True/False)