I. True or False

1. Investors demand higher expected rates of return on stocks with less variable rates of return.

2. The CAPM predicts that a security with a beta of 0 will offer a zero expected return.

3. An investor who puts $10,000 in Treasury bills and $30,000 in the market portfolio will have a beta of 3.0.

4. Investors demand higher expected rates of return on stocks with returns that are very sensitive to fluctuations in the stock market.

II. Definitions

1. Variance   2. Efficient Frontier   3. Beta   4. Correlation Coefficient