Question

Why do CDs have lower rates of return than stocks?

CDs are much riskier investments than stocks.

CDs are less risky than stocks.

CDs are not taxed while stock s returns are taxable.

CDs are not as liquid as stocks.

Given that most investors tend to be risk averse,

	no one buys risky assets.
	there's a trade-off between risk and return.
	low risk assets provide the best return.
	it must be a superior strategy compared to one that is risk loving.

Which of the following financial assets has both the highest risk and highest return for the period of 1926-2009?

	small company stocks
	large company stocks
	corporate bonds
	Treasury bills

Since all assets typically do not move together, how can investors typically reduce risk?

	purchase only the best performing assets
	diversify one's portfolio across different asset classes
	avoid poor performing assets
	actively manage one's portfolio

Risk that is common to all assets (e.g., common stocks) of a certain type is referred to as

	systematic risk.
	unsystematic risk.
	idiosyncratic risk.
	structural risk.

Which is the best example of idiosyncratic risk?

	a financial crisis
	a lawsuit because the corporation produced a faulty product
	a recession
	rising interest rates

If market participants rely only past stock prices to forecast future stock prices,

	they will be better able to forecast future price increases than future price decreases.
	they will be better able to forecast future price decreases than future price increases.
	they have adaptive expectations.
	they have rational expectations.