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True or False



This activity contains 10 questions.

Question 1.
The rate of return for a given level of risk on the next best alternative available to the saver is known as the opportunity cost.


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Question 2.
The real rate of interest is the rate of increase in actual purchasing power after adjusting for inflation.


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Question 3.
The term structure of interest rates will always be upward sloping.


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Question 4.
The greater the dispersion of possible returns for an investment, the riskier the investment.


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Question 5.
Diversification allows for risk reduction in a portfolio of investments if the returns on stocks in the portfolio are not perfectly correlated.


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Question 6.
Systematic risk exists because of the correlation between individual stock returns and market factors, such as movements in the general economy.


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Question 7.
An investor will receive additional returns by adding more unsystematic risk to a portfolio.


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Question 8.
Beta is a measure of firm-specific risk that can be diversified away through holding a portfolio.


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Question 9.
The total risk of a portfolio of assets equals the unique, or unsystematic, risk of assets in the portfolio times the systematic risk of the assets in the portfolio.


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Question 10.
Investing in foreign stocks is one way to improve diversification of a portfolio.


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