[iceberg1002]

It takes longer than eight years to retire a $24,000 loan at 8% if the annual payment is $3,000. True

2.
An annuity of $100 for ten years is currently less valuable if interest rates are 10% instead of 12%. False
3.
If a person buys a stock for $10 and sells it after ten years for $20, the annual compound return is 10%. True

4.
Higher rates of interest are associated with greater present values. False

5.
The standard deviation measures an asset's expected return. True

6.
Unsystematic risk is the tendency for stock prices to move together. True

7.
Systematic risk is reduced through diversification. False

8.
A beta of 2.0 indicates the return on the asset is more volatile than the market. True

9.
The numerical value of a stock's beta tends to be stable over time. True

10.
An aggressive investor will tend to prefer stocks with high betas during rising markets. False

11.
The return on a portfolio considers both the individual asset's return and its weight in the portfolio.False

12.
If a firm pays 10% compounded semi-annually, the true rate of interest is greater than 10%. False

13.
The larger the standard deviation of an investment's return, the larger is the investment's risk. True

14.
A beta coefficient is an index of an asset's unsystematic risk. False

15.
A portfolio consisting of securities that are highly correlated is well diversified. True

16.
The expected return on an investment includes both the expected of income plus expected price appreciation. False

17.
The capital asset pricing model specifies the required return adjusted for systematic risk. True

18.
The risk premium in the capital asset pricing model rises with the expected return on the market. True

19.
Beta coefficients are computed with estimated data concerning the asset's expected return

true

[morgaine300]

When I first started looking at these, I just assumed they were all time value of money. I see now it's more about investing, and I don't know the answers to all these. But I already started looking at it, so what the heck... until someone else comes along, I'll tell you what I do know. I invest in mutual funds so I'm not ignorant of the subject, but not up to par with a class on it. But... classroom and real life are many times not the same thing anyway.

These are correct: 1, 2, 4, 8, 13

These are not correct:
3 - You haven't accounted for the compounding.
6 & 7 - I hadn't heard these terms before, but I had my suspicions of what they meant and looked them up. They mean exactly what I thought they did and you've got this backwards. Systematic means what the market as a whole is doing, for instance, what happened in 2008. Diversification can't help something like that. Unsystematic is specific to a company or sector.
10 - Look up what beta means - a beta over 1 means it's doing better than the benchmark in up markets and worse in down markets (such as 1.25 meaning it's doing 25% better in an up market), and a beta below 1 means it's doing the opposite. I'd certainly want a beta higher than 1 in an up market. (Though I'm not sure what they're meaning by an aggressive investor - a high risk one? Or like an aggressive short-term trader?)
11 - OK, let's take an example. You invest $1000 one place and over the year it earns a 5% return. You invest $3000 another place and over the year it earns a 10% return. Do you consider that you overall earned a 7.5% return? 5% of $1000 is $50. 10% of $3000 is $300. So you got a total return of $350. You have $4000 total invested. That's an 8.75% return. If 3/4th's of your portfolio is in one investment, don't you think its weight would matter in your overall return?

These are a bit iffy on my part in terms of my knowledge, so these are just my thoughts:
5 - I don't like the question. It's more like the possible expected range of returns - it's like a measure of the volatility of the returns. Guess it depends how you interpret the question. (I hate true and false - they should be very definitive and not open to interpretations.)
12- Assuming that "true rate" means the yield or effective rate, then you've not accounted for the compounding again. But the term "true rate" might mean something different than what I think.
15 - I don't actual know this, but if "correlated" means the same thing it does in stats I'd say false
16 - This is another term thing. My definition of "return" means everything I get on it, which includes interest, dividends, gains... however, they may mean realized return, i.e. what you really did get. And you don't get a gain/loss unless you sell something, so it's not realized unless you sell it. But if I'm looking at the "returns" on a mutual fund, they're including capital gains and an assumption of reinvesting any dividends/gains. But your book's use of the term "expected returns" may mean something different.

These I just plain don't know:
9 - Since I deal with mutual funds and not individual stocks, don't know enough about what they do. I would think in the short-term this could be true, but things change over time. Don't know.
14 & 19 - Don't know the term beta coefficient. I've had stats - you'd think I could figure that out.
17 & 18 - Absolutely no clue what a capital asset pricing model is.

[ArcSine]

5, 12, 15, 16: Morgaine, your instincts serve you well. To Iceberg: hint on No. 5... two securities can have the same SDs but yet different expected returns.

No. 9: Generally, no. Poor question, though, as some stocks might have fairly stable betas... but generally across time the coefficients vary for a given security.

No. 14: Iceberg, you're correct here. Betas deal with market--or 'systematic'--risk.

No. 19: Hint: Betas are developed from historical data.

17: Correct; same reason as in #14.

18: Hint: Market expected return = Riskfree rate + Risk premium. Thus, MER could rise with an increase in the RFR, while the risk premium remained unchanged.