# 7(19points) True/False Questions( 1 points each) :

1. The rule for comparing machines with different lives is to select the machine with the greatest equivalent annual cost (EAC).

TRUEFALSE

1. If the standard deviation of Stock A is higher than that of Stock B then the Beta for A will be higher than the Beta for B.

TRUEFALSE

1. Portfolios that offer the highest expected return for a given variance or standard deviation are known as efficient portfolios.

TRUEFALSE

1. A portfolio with a beta of one offers an expected return equal to the market risk premium.
2. TrueFalse

1. All else equal, investors prefer to choose from portfolios having higher Sharpe ratios.
2. TrueFalse

1. A stock with doublethe Beta will have double the expected rate of return. .

TRUEFALSE

1. Diversification lowers risk only if some correlations between stocks are negative

TRUEFALSE

1. Most stocks are substantially more volatile than the market portfolio.

TRUEFALSE

1. Depreciation charges are considered cash flows.

TRUEFALSE

1. Sunk costs should be incorporated into the cash flows when using the NPV to decide whether to accept or reject a project.

TRUEFALSE

1. Portfolio diversification can reduce the variability ofreturns which stems from economy-wide perils.

TRUEFALSE

1. The standard deviation of a well-diversified portfolio ofstocks with a Beta of 1.4 would have a standard deviation of1.4 times that of the market portfolio.

TRUEFALSE

1. The variance of a portfolio can be calculated as the weighted average of the variances of the component assets.

TRUEFALSE

14.If stock XYZ has a standard deviation of returns greater than the market portfolio standard deviation, then XYZ must offer a higher return than the market portfolio.

TRUEFALSE

15.As the number of stocks in an equally weighted portfolio of stocks increases, the portfolio variance mustincrease .

TRUEFALSE

16.If two investments offer the same expected return, most investors would prefer the one with higher variance.

TRUEFALSE

17.The present value of nominal cash flows calculated at a nominal rate of interest will always be the same as the present value of the real equivalent cash flows calculated at the real rate of interest.

TRUEFALSE

18. Beta of a well-diversified portfolio is equal to the value weighted average beta of the securities included in the portfolio

TRUEFALSE

19.Beta of a non-diversified portfolio is equal to the value weighted average beta of the securities included in the portfolio

TRUEFALSE