Question

True False O O 1. RETURN - LOSS / ORIGINAL COST O O O O O 0 2. If Stock X has a higher profit than Stock Y, it is not fair to assume that Stock X has a higher HPR. 3. A quarterly return of 3% equates to an EAR of 12%. 4. Large company stocks tend to have larger standard deviations than small company stocks. 5. In a normal distribution, about 95% of all observations fall within two standard deviations of the average. 6. It is not possible to earn more than 100% in a single year. O 0 O 0 O O O 0 7. In the CAPM equation, stocks with larger betas will have lower expected returns. 8. The SML intersects the risk axis when graphed. 9. The market risk premium would be the same for stocks with different betas. O O O O 10. It is fair to say that systematic risk can be diversified away.

Answer 1

1.
True

2.
True

3.
False, (1+3%)^4-1=12.5509%

4.
False, lower standard deviations

5.
True

6.
False, it is possible

7.
False, higher expected returns

8.
False, intercepts the return axis only

9.
True

10.
False, cannot be diversified away