Miss

CHAPTER 6
RISK, RETURN, AND THE CAPITAL ASSET PRICING MODEL

True/False

Easy:

| |(6.2) Payoff matrix |Answer: a |EASY |
|[i]. |A payoff matrix shows the set of possible rates of return on an investment, along with their probabilities of occurrence, and the |
| |investment's expected rate of return as found by multiplying each outcome or "state" by its probability. |
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|[ii]. |When adding a new stock to an existing portfolio, the higher (or more positive) the degree of correlation between the new stock and |
| |those already in the portfolio, the less the additional stock will reduce the portfolio's risk. |
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|[iii]. |Diversification can reduce the riskiness of a portfolio of stocks. |
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|[iv]. |The realized return on a stock portfolio is the weighted average of the expected returns on the stocks in the portfolio. |
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|[v]. |The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by |
| |its standard deviation. |
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