T or F: A common stock with a beta of 1.0 is said to be of equal risk with the m
ID: 2617553 • Letter: T
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T or F: A common stock with a beta of 1.0 is said to be of equal risk with the market.
T or F: The coefficient of variation considers how an investment impacts the total risk of the firm, while the coefficient of correlation considers the specific risk of an investment.
T or F: Selection of portfolio combinations from the efficient frontier will depend upon our willingness to assume risk.
T or F: The coefficient of variation is calculated to help correlate the standard deviation and the relative expected value of an investment, which makes it easier to compare different sized investments.
T or F: Simulation models allow the analyst to test possible changes in the variables used in the model.
The lower the coefficient of correlation, the greater the
A.risk when projects are combined.
B.risk reduction when projects are combined.
C.return when projects are combined.
D.standard deviation when projects are combined.
All of the following are methods of evaluating the risk of a project EXCEPT
A.The net present value profile
B.A Monte Carlo simulation
C.Decision trees
D.The coefficient of variation
A project has the following projected outcomes in dollars: $250, $350, and $500. The probabilities of their outcomes are 25%, 50%, and 25%, respectively. What is the expected value of these outcomes?
A.$362.5
B.$89.4
C.$94.5
D.$178.3
A tool that helps to organize the decision process by presenting a graphical comparison of investment choices is called a
A.module hierarchy diagram
B."what if" simulation.
C.decision tree.
D.None of these options are correct.
In order to reduce risk in a firm, the firm would seek to enter a business that
A.has a high positive correlation with its present business.
B.has a zero correlation with its present business.
C.has a high negative correlation with its present business.
D.has a high negative variation with its present business.
Using the risk-adjusted discount rate approach, projects with high coefficients of variation will have ______ net present values than projects with low coefficients of variation and similar cash flows.
A.somewhat higher
B.substantially higher
C.lower
D.either somewhat higher or substantially higher
Which of the following is a false statement?
A.Risky investments may produce large losses.
B.Risky investments may produce large gains.
C.The coefficient of variation is a risk measure.
D.Risk-averse investors cannot be induced to invest in risky assets.
The term "risk-averse" means that
A.an individual refuses to take risks.
B.most investors and businessmen seek risk.
C.an individual will seek to avoid risk or be compensated with a higher return.
D.only investment proposals with no risk should be accepted.
A correlation coefficient of _____ provides the greatest possible risk reduction to the firm.
A.-2
B.-1
C.0
D.+1
Which of the following combinations of investments would provide the firm with the highest negative correlation?
A.Fabric firm and retail firm
B.Telecommunications firm and Internet firm
C.Soft drink manufacturer and health care firm
D.Airline company and gasoline manufacturer
Explanation / Answer
(1) true :- it will move similar to market
(2)true
(3)true
(4)true
(5)true:- simulation deals with variable and range of such variable
(6)D :- when r is lower hence std deviation of two stock is higher than its covariance between two stock
(7) A
(8) A 362.5 ( 250*0.25+ 350*0.5+500*0.25)
(9)C
(10) C has high negative correlation because if one business is not doing well other will do well and risk reduce
(11) D
(12) C
(13) B -1
(14)D
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