If Investors Are Risk Averse and Hold Only One Stock

question 12

True/False

If investors are risk averse and hold only one stock, we can conclude that the required rate of return on a stock whose standard deviation is 0.21 will be greater than the required return on a stock whose standard deviation is 0.10.However, if stocks are held in portfolios, it is possible that the required return could be higher on the low standard deviation stock.

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Definitions:

Cashier's Check

A check issued by a bank, drawn on its own funds and signed by a cashier, guaranteeing payment.

Liable

The condition of being legally accountable for specific actions or responsibilities, particularly in relation to debts or legal duties.

Oral Stop-Payment Order

A verbal instruction to a financial institution to cancel the payment process of a check or transaction.

Good

An item or product that is manufactured or produced for sale, often tangible, and exchanged in the marketplace.