If We Assume That the Standard Deviation on Company A's

question 29

Multiple Choice

If we assume that the standard deviation on Company A's shares is greater than that on Company B's shares, this indicates that:
I.the required rate of return on Company A's shares is higher than that on Company B's shares.
II.the required rate of return on Company A's shares is lower than that on Company B's shares.
III.the potential loss from Company A's shares is greater than that from Company B's shares.
IV.the potential loss from Company A's shares is smaller than that from Company B's shares.
V.there is no difference between the required rate of return on and potential loss from Company A's
Shares and those associated with Company B's shares.

• A)I and III only.
• B)I and II only.
• C)II and III only.
• D)II and IV only.
• E)V only.

---

Definitions:

Weber's Law

A principle in psychology that states the smallest change in a stimulus, such as weight or brightness, that can be detected is a constant proportion of the stimulus level.

Absolute Threshold

The minimum stimulus intensity required to detect a stimulus at least half the time.

Sensory Adaptation

The mechanism by which sensory receptors reduce their sensitivity to sustained stimuli as time progresses.

Signal Detection Theory

A psychological theory that describes how individuals decide on the presence or absence of a stimulus under conditions of uncertainty.