The looser (more spread out) the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation. a. True b. False In portfolio analysis, we often use ex post (historical) returns and standard deviations, despite the fact that we are really interested in ex anta (future) data. a. True b. False The realized return on a stock portfolio is the weighted average of the expected returns on the stocks in the portfolio. a. True b. False Market risk refers to the tendency of a stock to move with the general stock market. A stock with above-average market risk will tend to be more volatile than an average stock, and its beta will be less than 1.0. a. True b. False We would generally find that the beta of a single security is less stable over the beta of a diversified portfolio. a. True b. False A firm can change its beta through managerial decisions, including capital and capital structure decisions. a. True b. False Which of the following statements is CORRECT? a. An investor can eliminate virtually all market risk if he or she holds large and well diversified portfolio of stocks. b. The higher the correlation between the stocks in a portfolio, the lower inherent in the portfolio. c. An investor can eliminate virtually all diversifiable risk if he or she very large, well diversified portfolio of stocks. d. Once a portfolio has about 40 stocks, adding additional stocks will its risk by even a small amount. e. It is impossible to have a situation where the market risk of a single less than that of a portfolio that includes the stock. Inflation, recession, and high interest rates are economic events that characterized as being a. systematic risk factors that can be diversified away. b. among the factors that are responsible for market risk. c. company-specific risk factors that can be diversified away. d. irrelevant except to governmental authorities like the Federal e. risks that are beyond the control of investors and thus should not by security analysts or portfolio managers