Question Details

The approximate probability of a value occurring 



1.	The standard deviation is appropriate to compare the risk between two investments only if
a.	the expected returns from the investments are approximately equal
b.	the investments have similar life spans
c.	objective estimates of each possible outcome is available
d.	the coefficient of variation is equal to 1.0
e.	none of the above



	2.	The approximate probability of a value occurring that is greater than one standard deviation from the mean is approximately (assuming a normal distribution)
a.	68.26%
b.	2.28%
c.	34%
d.	15.87%
e.	none of the above



	3.	Based on risk-return tradeoffs observable in the financial marketplace, which of the following securities would you expect to offer higher expected returns than corporate bonds?
a.	U.S. Government bonds
b.	municipal bonds
c.	common stock
d.	commercial paper
e.	none of the above



	4.	The primary difference(s) between the standard deviation and the coefficient of variation as measures of risk are:
a.	the coefficient of variation is easier to compute
b.	the standard deviation is a measure of relative risk whereas the coefficient of variation is a measure of absolute risk
c.	the coefficient of variation is a measure of relative risk whereas the standard deviation is a measure of absolute risk
d.	the standard deviation is rarely used in practice whereas the coefficient of variation is widely used
e.	c and d



	5.	The ____ is the ratio of ____ to the ____.
a.	standard deviation; covariance; expected value
b.	coefficient of variation; expected value; standard deviation
c.	correlation coefficient; standard deviation; expected value
d.	coefficient of variation; standard deviation; expected value
e.	none of the above


	
6.	Two investments have the following expected returns (net present values) and standard deviations:
		PROJECT	Expected Value	Standard Deviation
		Q		$100,000	$20,000
		X		$50,000	$16,000	
	Based on the Coefficient of Variation, where the C.V. is the standard deviation dividend by the expected value.
a.	All coefficients of variation are always the same.
b.	Project Q is riskier than Project X
c.	Project X is riskier than Project Q
d.	Both projects have the same relative risk profile
e.	There is not enough information to find the coefficient of variation.



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