Exam 4: The Relationship Between Risk and Return

The beta of the market portfolio is

A share of stock has an expected return of 12 percent and a standard deviation of 24 percent. Therefore, its coefficient of variation is

How can individual investors obtain the benefits of diversification?

The "expected value" is

The normal distribution contains one-third of the outcomes to the right of the mean.

How can we tell if a project creates value for the owners?

If we plot the risk-return profile of a project on a graph and it falls below the Security Market Line, the project is creating value.

If two assets have returns that move together perfectly, their correlation coefficient is

The correct way to find an average of a distribution of outcomes is to add up all the outcomes and divide by the number of outcomes.

If we have four outcomes and use a simple average to calculate the mean, we are assuming each outcome has what chance of occurring?

The bell curve is a graphical representation of

The risk of an investment is best measured by its expected return.

The best reason to hold the market portfolio is it

We can obtain the benefits of diversification if two assets have less than perfect positive correlation.

All else being equal, risk averse investors prefer wider, flatter distribution of returns around the mean.

An investment's return should always be inversely related to its risk.

People who are "risk averse" usually don't invest their money in anything.

If two assets are perfectly positively correlated, we can put them together into a portfolio and completely eliminate risk.

Financial risk can be defined as the uncertainty around an expected outcome.

The expected value of a distribution is also the mean.