1. True --False Treasury bills have provided the highest
average return, both in nominal terms and in real terms, between
2. True --False Risk premium is the difference between
the security return and the Treasury bill return.
3. True --False According to the authors, a reasonable
range for the risk premium in the United States is 5% to 8%.
4. True --False The standard statistical measures of
spread are beta and covariance.
5. True --False Diversification reduces risk because
prices of different securities are perfectly positively correlated.
6. True --False The risk that can be eliminated by
diversification is called systematic, non-diversifiable, or market risk.
7. True --False The beta of a well-diversified portfolio
is equal to the value weighted average beta of the securities included in the portfolio.
8. True --False The average beta of all stocks in the
market is zero.
9. True --False A portfolio with a beta of one offers an
expected return equal to the market risk premium not the risk free rate plus
the beta times the market risk premium.
True --False The higher the standard deviation of a single
stock the higher is its beta (always).