# Corporate Investment and Finance

**Question description**

1. True --False Treasury bills have provided the highest average return, both in nominal terms and in real terms, between 1900-2006.

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).

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