Expected risk per unit of expected return None of the above 8. Ideally, In order weighted stock er to reduce portfolio risk for a portfolio consisting of two equally p You should choose two stocks which have a perfect negative correlation coefficient. choose a stock and gold lwo sto which have a perfect positive correlation coeficent iv. Two stocks which have a correlation coefficient of zero The Security Market Line (SML) is determined by the risk free rate, stocks' betas and the market's risk aversion which determines the slope of the line. 1. Once estimated, however this line is fixed till the next Fed Chair is C. nominated i. Till the new president of the country is elected ili. The line is not fixed, it can move up and down, depending on inflation The line can change depending not only upon inflation, but also upon the degree of risk aversion in the market iv. You know that the required return on a stock depends on the risk free rate, risk premium on the market portfolio and the stock's beta. Using the concept of the SML, what happens to the required return on the stock when its beta doubles i. The required return also doubles ii. No, the required return can actually go down, because of high volatility D. ii. The required return would go up, but not in a proportional manner iv. Cannot say without more information Weighted Average Cost of Capital (WACC) is an important concept in managing a company's long term investment strategy. The different weights in the WACC concept, such as the cost of debt, the cost of preferred stock and the cost of common equity, may be determined by: i. The industry association the company belongs to E. ii. Book Value (BV) weights ili Market Value (MV) weights iv. BV, MV and /or Target weights determined by the financial strategy of the company. Typically target weights are preferred