12) Mark all the correct answers. There may be more than one or no correct answer.

a) Dividend yields can never be negative.

b) Capital gains yields can never be negative.

c) The total dollar return can never be negative.

d) The worst total percentage return you can earn is negative 100%.

e) The best total percentage return you can earn is positive 100%.

16) Mark all the correct answers. There may be more than one or no correct answer.

A geometric average cannot be computed if one or more of the individual returns are negative.

The geometric average will always be higher than the arithmetic average.

The standard deviation of investment returns measures the volatility of the investment.

The standard deviation cannot be computed when one or more of the returns are negative (square root of negative number).

The standard deviation can never be negative.

All things being equal, investors prefer lower standard deviations.

22) Mark all the correct answers. There may be more than one or no correct answer.

Beta measures the systematic risk of an asset. This is the risk that cannot be diversified away.

Standard deviation measures total risk of an asset. Part of the total risk, called the idiosyncratic or stock-specific risk, can be reduced by forming portfolios.

The portfolio weights must always add up to 100%.

An asset with a beta of zero is uncorrelated with the overall stock market.

If an asset has a beta of zero, it also must have a standard deviation of zero.

Question 31) Mark all the correct answers. There may be more than one or no correct answer.

A company's actual return needs to exceed its cost of capital to keep investors happy in the long run.

The after-tax and pre-tax cost of debt differ because interest payments are tax deductible to the company.

The after-tax and pre-tax cost of common equity differ because dividend payments are tax deductible to the company.

If a company had no debt, its cost of capital would be equal to the cost of equity.