Please mark the following as either True or False
___ To decrease the variance of a portfolio of assets, simply add assets with low/small variance.
___ An investor who is in the 33% tax bracket is indifferent between a 9% tax-free muni and a 6% taxable bond.
___ The standard deviation of a portfolio of assets is simply the weighted average of the standard deviations of the individual assets.
___ The formula of the approximations of the real return becomes less accurate as the rate of inflation increases.
___ When deciding between a risky asset (or portfolio) and a risk-free asset, the more risk averse the investor, the greater the proportion they will choose to invest in the risky asset
___ For a given set of possible cash flows, as the required risk premium for a project increases, its price must decrease to entice investors to purchase the asset.
(Hint: What is the price and expected return (premium) relation?)
___ Eurodollars are dollar-denominated deposits at banks in European countries or European branches of American banks.
___ Except for Treasury bills, money market securities are not free of default risk.
___ Standard & Poor’s 500 is a broadly based index of 500 firms and it is a price-weighted index.
___ If an asset’s returns come from a normal distribution, then the relation between its arithmetic and geometric averages are: E[arithmetic average] = E[geometric average] – 0.5σ2.
___ Relative to a buy and hold strategy, average arithmetic returns overstate the return on a portfolio.