1. Under what circumstances will the coefficient of variation of a security's returns and the standard deviation of that security's returns give the same relative measure of risk when compared with the risk of another security?
2. Explain how diversification can reduce the risk of a portfolio of assets to below the weighted average of the risk of the individual assets.
3. What are the primary variables that influence the risk of a portfolio of assets?
4. Distinguish between unsystematic and systematic risk. Under what circumstances are investors likely to ignore the unsystematic risk characteristics of a security?
5. What effect do increasing inflation expectations have on the required returns of investors in common stock?