FN 215 Financial Management (Fall 2023) Homework 11 (Due 11/27/2023) Dr. Bo Meng I. True or False 1) "Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities. (2 pt). TRUE FALSE 2) A stock's beta measures its diversifiable risk relative to the diversifiable risks of other firms. (2 pt). II. TRUE FALSE 3) If the returns of two firms are negatively correlated, then one of them must have a negative beta. (2 pt). TRUE FALSE 4) It is possible for a firm to have a positive beta, even if the correlation between its returns and those of another firm is negative. (2 pt). TRUE FALSE Multiple Choice Questions 1) Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true, assuming the CAPM is correct. (2 pts). A) Stock A would be a more desirable addition to a portfolio then Stock B. B) In equilibrium, the expected return on Stock B will be greater than that on Stock A. C) When held in isolation, Stock A has more risk than Stock B