Question: A one-stock portfolio can be less risky than a 100-stock portfolio.

Answer Choices:
a. True
b. False

Answer: a. True

 

Question: A firm can have a positive beta even if its returns are negatively correlated with another firm.

Answer Choices:
a. True
b. False

Answer: a. True

 

Question: If investors become less averse to risk, the slope of the SML will increase.

Answer Choices:
a. True
b. False

Answer: b. False

 

Question: According to CAPM, portfolio risk matters more than individual stock risk.

Answer Choices:
a. True
b. False

Answer: a. True

 

Question: Variance is always larger than its square root, the standard deviation.

Answer Choices:
a. True
b. False

Answer: a. True

 

Question: The CAPM concludes asset value should consider risk and expected return, assuming diversification.

Answer Choices:
a. True
b. False

Answer: a. True

 

Question: Market risk refers to the tendency of a stock to move with the general market.

Answer Choices:
a. True
b. False

Answer: a. True

 

Question: A stock’s diversifiable risk can be reduced by adding more stocks to the portfolio.

Answer Choices:
a. True
b. False

Answer: b. False

 

Question: Firms should measure asset risk based on stockholder risk.

Answer Choices:
a. True
b. False

Answer: a. True

 

Question: A stock with beta = –1.0 has zero market risk.

Answer Choices:
a. True
b. False

Answer: b. False

 

Question: A stock’s beta measures its diversifiable risk.

Answer Choices:
a. True
b. False

Answer: b. False

 

Question: Coefficient of variation adjusts for return differences; it’s better than standard deviation alone.

Answer Choices:
a. True
b. False

Answer: a. True

 

Question: Negative correlation between two stocks implies one must have negative beta.

Answer Choices:
a. True
b. False

Answer: b. False

 

Question: Beta is more relevant to single-stock investors than diversified investors.

Answer Choices:
a. True
b. False

Answer: b. False

 

Question: Managers should never take actions that increase risk, regardless of return impact.

Answer Choices:
a. True
b. False

Answer: b. False

 

Question: More risk-averse investors will accept lower returns on less risky assets.

Answer Choices:
a. True
b. False

Answer: a. True