Quiz Ch 08 – T/F Risk Reduction Through Diversification
Fundamentals of Financial Management, Concise
Brigham and Houston
09th Edition
True or false: Generally, diversification decreases the overall risk of a stock portfolio.
True or false: Generally, diversification decreases the overall risk of a stock portfolio.
True or false: Risk-averse investors demand greater returns for investments with substantial uncertainty in their returns, a trait exhibited by the majority of investors.
True or false: The SML links needed returns to firms’ systematic risk. Both the slope and intercept of this line can be impacted by managerial decisions.
True or false: The Y-axis intercept of the SML signifies the demanded return for an individual asset when the realized return on an average (b = 1) stock is zero.
True or false: The value of beta dictates the slope of the SML.
True or false: When investors’ risk aversion diminishes, the slope of the Security Market Line (SML) will rise.
True or false: SML slope is influenced by investor risk aversion; higher average aversion leads to steeper SML.
True or false: The SML’s Y-intercept represents the risk-free rate, associated with a portfolio having a beta of zero.
True or false: Typically, the beta of an individual security tends to be more consistent over time compared to the beta of a diversified portfolio.
True or false: Variance functions as a gauge of returns’ variability. It is consistently larger than its square root, the standard deviation, as it involves squaring the deviations of actual returns from the expected return.