Please choose the best answer by circling the choice: 8 points each) 2. A. Coefficient of variation is an important measure of risk etc. in finance, because it represents, in plain English, i. The square of standard deviation, a very important measure of stand-alone ii. The market risk part of a stock's overall risk i. Expected return per unit of risk risk weighted stock, i. You should choose two stocks which have a perfect negative correlation coefficient. choose a stock and gold il. May be a stock and a bitcoin ili. Two stocks which have a perfect positive correlation coefficient 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. C. Once estimated, however this line is fixed till the next Fed Chair is nominated i. 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 v. The line can change depending not only upon inflation, but also upon the degree of risk aversion in the market D. 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 i. No, the required return can actually go down, because of high volatility iii. The required return would go up, but not in a proportional manner iv. Cannot say without more information E. Weighted Average Cost of Capital (WACC) is an important concept in managing a company's long term investment strategy. The different weights in the WACE concept, such as the cost of debt, the cost of preferred stock and the cost of common equity, may be determined by: The industry association the company belongs to ii. Book Value (BV) weights ii. Market Value (MV) weights iv. BV, MV and /or Target weights determined by the financial strategy of the company. Typically target weights are preferred