QUESTION 5 Which one of the following statements is FALSE? Because investors are risk averse, the risk-free interest rate is not the right rate to use when converting risky cash flows across time. When we compute the return of a security based on the average payoff we expect to receive, we call it the expected return. The more risk averse investors are, the higher the current price of a risky asset will be compared to a risk-free bond. The notion that investors prefer to have a safe income rather than a risky one of the same average amount is called risk aversion. QUESTION 9 Which of the following equations is INCORRECT? PRX (R - E[R])2 Var(R) = \SD(R) SD(R) = VERPR* (R - E[R]2 Var(R) = ER E[R] ER PRXR