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Old 09-24-2010, 08:22 AM
fjacruz fjacruz is offline
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Join Date: Sep 2010
Location: Portugal
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Default multiple choice help

I`ve a doubt in some multiple choice questions:

Which of the following statements is true?
Choose one answer.

a. A standard approach to estimate the risk premium is to use 5 years of monthly data.


b. The annualized market risk premium in the US is around 20%.


c. Volatility is measured with less precision than the mean.


d. Risk-averse investors tend to avoid investing in securities with past negative realized returns.


e. The highest the volatility of returns, the largest the difference (in absolute terms) between the arithmetic mean and the geometric mean.


In this case, are we in the presence of diversification effect?
Choose one answer.

a. No, because the correlation between stocks is positive and thus the variance of the portfolio will be simply a weighted average of individual variances.


b. No, because the standard deviation of the portfolio is higher than standard deviation of each stock alone.


c. No, because the variance of the portfolio is higher than weighted average of the variance of the individual stocks.


d. Yes, because the variance of the portfolio is lower than weighted average of the variance of the individual stocks.


e. None of the above.


Which of the following statements regarding the central limit theorem is false?
Choose one answer.

a. The variance of the distribution of sample means is σ2/n.


b. The central limit theorem has limited usefulness for skewed distributions.


c. The mean of the population and the mean of all possible sample means are equal.


d. When the sample size n is large, the sampling distribution of the sample means is approximately normal.


e. Both B and C.


Rank the following securities from the most volatile to the least volatile, historically.
I. Small-company stocks
II. Corporate Bonds
III. Long-term government bonds
IV. Large-company stocks

Choose one answer.

a. I, II, IV, III


b. I, IV, II, III


c. IV, I, III, II


d. IV, II, I, III


e. II, IV, I, III



thanks
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