If Investors Are Risk Averse and Hold Only One Stock

question 97

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 stock with the low standard deviation.

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Definitions:

Profit or Loss

The difference between total revenues and total expenses of a business over a specific period of time.

Converted

This term usually refers to a change in the characteristics or use of an asset, such as converting a building for a different purpose or converting securities from one form to another, like bonds to stock.

LIBOR

London Interbank Offered Rate, a benchmark interest rate at which major global banks lend to one another.

Eurodollar Loans

Loans in U.S. dollars that are deposited in banks outside the United States, often used in international trade financing.