If Investors Are Risk Averse and Hold Only One Stock,we

question 145

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 lower standard deviation.

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Definitions:

Proprietorships

Businesses that are owned and operated by a single individual, with no legal distinction between the owner and the business entity.

Opportunity Cost

The value of the best alternative that is forgone when a decision is made to pursue a particular course of action.

Expected Profit Rate

The forecasted return on an investment, calculated based on potential outcomes and their probabilities.

Net Inventory Investment

The change in the total value of inventories in an economy during a specific period.