You plan to simulate a portfolio of investments over a multiyear period, so for each investment (which could be a particular stock or bond, for example), you need to simulate the change in its value for each of the years. How would you simulate these changes in a realistic way? Would you base it on historical data? What about correlations? Do you think the changes for different investments in a particular year would be correlated? Do you think changes for a particular investment in different years would be correlated? Do you think correlations would play a significant role in your simulation in terms of realism?

The expected value of an investment: Answer a. Is what the owner will receive when the investment is sold b. Is the sum of the payoffs c. Is the probability-weighted sum of the possible outcomes d. Cannot be determined in advance

In historical data, we see that investments with the highest average annual returns also tend to have the highest standard deviations of annual returns. This observation supports the notion that there is a positive correlation between risk and return. Which of the following answers correctly ranks investments from highest to lowest risk (and return), where the security with the highest risk is shown first, the one with the lowest risk last? a. Large-company stocks, small-company stocks, long-term corporate bonds, U.S. Treasury bills, long-term government bonds. b. Small-company stocks, large-company stocks, long-term corporate bonds, long-term government bonds, U.S. Treasury bills. c. U.S. Treasury bills, long-term government bonds, long-term corporate bonds, small-company stocks, large-company stocks. d. Large-company stocks, small-company stocks, long-term corporate bonds, long-term government bonds, U.S. Treasury bills. e. Small-company stocks, long-term corporate bonds,…

Diversification refers to the _________.a. reduction of the stand-alone risk of an individual investment, measured by its beta coefficient, by combining it with other investments in a portfolio b. reduction of the stand-alone risk of an individual investment, measured by the standard deviation of its returns, by combining it with other investments in a portfolio c. reduction of systematic risk of an individual, measured by its beta coefficient, by combining it with other investments in a portfolio d. reduction of systematic risk of an individual, measured by the standard deviation of its returns, by combining it with other investments in a portfolio e. reduction of the unsystematic risk of an individual, measured by its coefficient of variation, by combining it with other investments in a portfolio