True False O o 1. RETURN = LOSS / ORIGINAL COST o O 2. If Stock X has a higher profit than Stock Y, it is not fair to assume that Stock has a higher HPR. 3. A quarterly return of 3% equates to an EAR of 12%. o O 0 0 O 4. Large company stocks tend to have larger standard deviations than small company stocks. 5. In a normal distribution about 95% of all observations fall within two standard deviations of the average. 6. It is not possible to earn more than 100% in a single year. 0 O O O O O 7. In the CAPM equation, stocks with larger betas will have lower expected returns. 8. The SML intersects the risk axis when graphed. 9. The market risk premium would be the same for stocks with different betas. O O O 0 10. It is fair to say that systematic risk can be diversified away. 11. Probabilities range from -100% to 100%. O O O O 0 12. When two states of the economy have probabilities of 50% and their possible returns are 8% and -10%, the expected return 40%. O O O O 15. The APR for the stock in #14 > 15%. O O 16. The EAR for the stock in #14 > 10%. O O 17. The average of 10%, 20%, -10% and 0% is less than 6%. O O 18. The standard deviation of the returns in #17 is more than 15%. O O 19. An equally weighted portfolio containing stocks with betas of 1.2 and 0.6 would have a beta