We know that the geometric average (time-weighted return) on a risky investment is always lower than the corresponding arithmetic average. Can the IRR (the dollar-weighted return) similarly be ranked relative to these other two averages?

Portfolio theory tends to define risky investments in terms of just two factors: expectedreturns and variance (or standard deviation) of those expected returns. What assumptions need to be made about investors and the expected investment returns (one assumption in each case) to justify this ‘two-factor’ approach? Are these assumptions justified in real life?

1.) Which is false concerning standard deviation? a. The smaller the standard deviation is the less volatile the investment. b. A larger standard deviation means a riskier investment.​ c. Standard deviation measures the volatility of an investment from the expected losses.   2.) Which is false concerning covariance?​ a. A negative covariance means that the two variables tend to move in opposite directions, perpendicular to each other. b. A covariance of zero means there is no linear relationship between the two variables. c. A positive covariance means that the variables tend to move together .

The expected return of a portfolio is simply the weighted average of the expected returns for the individual assets within the portfolio.  Group of answer choices True False

Market potential is an example of an economic risk measure. O True O False

When comparing investments that have different means, the measures the relative riskiness of each investment and is a better indicator of risk than the standard deviation.

Is it true that the the wider the risk premium, the lower the price of a expected future cash flow?

Unsystematic risk: is compensated for by the risk premium. is measured by standard deviation. is related to the overall economy. can be effectively eliminated by portfolio diversification. is measured by beta.

A forward rate is the mathematical expectation of a future spot rate in risk neutral world. O True False

Suppose the utility function is U = E(r) - 0.5Ao2. Draw the indifference curve corresponding to a utility level of 0.2 for an investor with a risk aversion coefficient of 3. Please note the vertical line indicates expected return, and plot standard deviation on the horizontal line.