1. Stock prices and stand-alone risk The S&P 500 Index is one of the most commonly used benchmark indices for the U.S. equity markets. Consisting of 500 companies, is a market value-weighted index. This means that each company's performance is reflected in the index, weighted by the ratio of the company's value to the total value of all the companies. Based on your understanding of P/E ratios, in which of the following situations would the average trailing P/E ratio (current price divided by earnings per share over the previous 12 months) of the S&P 500 Index be higher? The outlook for the economy and the markets is for an improvement. The outlook for the economy and the markets is for a downturn. You invest $100,000 in only one stock. To which kind of risk will you primarily be exposed? O Stand-alone risk O Portfolio risk Generally, investors would prefer to invest in assets that have: O A lower-than-average expected rate of return given the perceived risk. O A higher-than-average expected rate of return given the perceived risk