Question

Which two of the following five statements are correct?

Select two alternatives:

• A risk-averse investor will avoid investing in stocks.
• Diversification eliminates systematic risk but not idiosyncratic risk.
• The 95% confidence interval for the expected return is defined as the Historical Average Return plus or minus three standard errors.
• The realized return is the total return we earn from dividends and capital gains, expressed as a percentage of the initial stock price.
• While there is no clear relationship between risk and return for individual stocks, on average smaller stocks have both higher risk and returns compared to larger stocks.

Answer 1

A risk-averse investor will avoid investing in stocks.

A risk averse investor will in general stay away from moderately higher risk ventures, for example, stocks, choices, and prospects. They want to stay with speculations with ensured returns and lower-to-no risk. These speculations incorporate, for instance, government securities and Treasury bills.

The realized return is the total return we earn from dividends and capital gains, expressed as a percentage of the initial stock price.

These are the two currect statements