Fundamentals of Financial Management Concise
Quiz 8: Risk and Rates of Return
Risk-Averse Investors Require Higher Rates of Return on Investments Whose
Risk-averse investors require higher rates of return on investments whose returns are highly uncertain,and most investors are risk averse.
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When adding a randomly chosen new stock to an existing portfolio,the higher (or more positive)the degree of correlation between the new stock and stocks already in the portfolio,the less the additional stock will reduce the portfolio's risk.
Diversification will normally reduce the riskiness of a portfolio of stocks.
In portfolio analysis,we often use ex post (historical)returns and standard deviations,despite the fact that we are really interested in ex ante (future)data.
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