Q U ESTIONS

$2-$isky return is more peaked than that of$2-2$ The probability distribution of a less risky return is more peaked than that of

a riskier return. What shape would the probability distribution have for $($a$)$

completely certain returns and $($b$)$ completely uncertain returns?

$2-3$ Security A has an expected return of $7\%,$ a standard deviation of returns of

$35\%,$ a correlation coefficient with the market of $-0\mathrm{.}3,$ and a beta coefficient

of $-1\mathrm{.}5.$ Security B has an expected return of $12\%,$ a standard deviation of

returns of $10\%,$ a correlation with the market of $0\mathrm{.}7,$ and a beta coefficient of

$1\mathrm{.}0.$ Which security is riskier? Why?

$2-4$ If investors' aversion to risk increased, would the risk premium on a high$-$

beta stock increase by more or less than that on a low$-$beta stock? Explain.

$2-5$ If a company's beta were to double, would its expected return double?

a riskier return. What shape would the probability distribution have for $($a$)$

completely certain returns and $($b$)$ completely uncertain returns?

$2-3$ Security A has an expected return of $7\%,$ a standard deviation of returns of

$35\%,$ a correlation coefficient with the market of $-0\mathrm{.}3,$ and a beta coefficient

of $-1\mathrm{.}5.$ Security B has an expected return of $12\%,$ a standard deviation of

returns of $10\%,$ a correlation with the market of $0\mathrm{.}7,$ and a beta coefficient of

$1\mathrm{.}0.$ Which security is riskier? Why?

$2-4$ If investors' aversion to risk increased, would the risk premium on a high$-$

beta stock increase by more or less than that on a low$-$beta stock? Explain.

$2-5$ If a company's beta were to double, would its expected return double?