Question

Stock ABC has a required return of 9 percent. Stock XYZ has a required return of 11 percent. Assume a risk-free rate of 2.75 percent. As a result, Stock ABC is riskier than Stock XYZ.

True

False

PQR, Inc. recently adjusted the probabilities for its expected cash flows due to a change in market conditions. It revised the probability of favorable conditions from 42% to 18% and the probability of poor earnings from 5% to 20%. It is likely that this revision would raise expected returns.

Select one:

True

False

Question text

If the required return from an asset is 14%, and the asset has a 65% probability of yielding a 20% return and a 35% probability of earning an 8% return, you should purchase the asset since the expected return of 15.8% exceeds the required return.

Select one:

True

False

If the probability of a 10% return is 60% and the probability of a 5% loss is 40%, then the expected return is 4.0 percent.

Select one:

True

False

Answer 1

1)

Risk and required return have direct relationship. If risk increase, required return will increase and if risk decrease, require return will decrease. Required returns compensate the investor for risk undertaken.

Hence, given statement is False.