Question

The coefficient of correlation represents the standard deviation divided by the expected value.

True or False

Choosing projects with returns equal to the company norm but having a higher level of risk will most likely lower the company's stock price.

True or False

Answer 1

Answer 1:

Correct answer is:

False

Explanation:

Coefficient of correlation is determined as covariance divided by  the product of the two variables' standard deviations

Hence the statement is false.

Answer 2:

Correct answer is:

True

Explanation:

While evaluating a project the level of risk of individual project and how such project affects total risk of the firm must be considered.

Choosing projects with returns equal to the company norm but having a higher level of risk will impact its expected results and it may also impact total risk and return of the firm. Impact on expected returns will most likely lower company's stock price.

Hence the statement is true.