Can you answer these questions with a shirt explanation?

1. True /False (Please explain why it is true or false) 1 "Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities. a. b. True False 2 When adding a randomly chosen new stock to an existing portfolio, the higher (or more positive) the degree of correlation between the new stock and stocks already in the portfolio, the less the additional stock will reduce the portfolio's risk. a. b. True False 3 An individual stock's diversifiable risk, which is measured by its beta, can be lowered by adding more stocks to the portfolio in which the stock is held. a. b. True False 4 If an investor buys enough stocks, he or she can, through diversification, eliminate all of the market risk inherent in owning stocks, but as a general rule it will not be possible to eliminate all diversifiable risk. a. b. True False 5 Under the CAPM, the required rate of return on a firm's common stock is determined only by the firm's market risk. If its market risk is known, and if that risk is expected to remain constant, then analysts have all the information they need to calculate the firm's required rate of return. a. b. True False 6 The slope of the SML is determined by the value of beta. a. b. True False 7 The SML relates required returns to firms' systematic (or market) risk. The slope and intercept of this line can be influenced by a manager's actions. a. b. True False II. Multiple Choice (Please explain your answer) 8 You have the following data on three stocks: Beta Stock Standard Deviation A 20% 0.59 B 10% 0.61 C 12% 1.29 If you are a strict risk minimizer, you would choose Stock if it is to be held in isolation and Stock if it is to be held as part of a well-diversified portfolio A) A; A. B) A; B. C) B; A. D) C; A. E) C; B. 9 Which of the following statements is CORRECT? A) An investor can eliminate virtually all market risk if he or she holds a very large and well diversified portfolio of stocks. B) The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio. C) It is impossible to have a situation where the market risk of a single stock is less than that of a portfolio that includes the stock. D) Once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by even a small amount. E) An investor can eliminate virtually all diversifiable risk if he or she holds a very large, well diversified portfolio of stocks. 10 Our portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expected return of 15%, a beta of 1.6, and a standard deviation of 30%. The returns of the two stocks are independent, so the correlation coefficient between them.Ixys is zero. Which of the following statements best describes the characteristics of your portfolio? A) Your portfolio has a beta equal to 1.6 and its expected return is 15%. B) Your portfolio has a standard deviation of 30% and its expected return is 15%. C) Your portfolio has a standard deviation less than 30% and its beta is greater than 1.6. Your portfolio has a standard deviation greater than 30% and a beta equal to 1.6. E) Your portfolio has a beta greater than 1.6 and an expected return greater than 15%. 11 If the price at which a stock is trading is less than its intrinsic or theoretical value, A) the stock is experiencing supernormal growth. B) the stock should be sold. C) the company is probably not trying to maximize price per share. D) the stock should be bought. E) dividends are not being declared. III. Problem solving 12 Magee Company's stock has a beta of 1.20, the risk- free rate is 4.50%, and the market risk premium is 5.00%. What is Magee's required return