Please mark the following as either True or False

1. For a given set of possible cash flows, as the required risk premium for a project increases, its price must decrease to entice investors to purchase the asset.

 (Hint: What is the price and expected return (premium) relation?)

2. Eurodollars are dollar-denominated deposits at banks in European countries or European branches of American banks.

3. Except for Treasury bills, money market securities are not free of default risk.

4. Standard & Poor’s 500 is a broadly based index of 500 firms and it is a price-weighted index.

5. If an asset’s returns come from a normal distribution, then the relation between its arithmetic and geometric averages are: E[arithmetic average] = E[geometric average] – 0.5σ2.

6. Relative to a buy and hold strategy, average arithmetic returns overstate the return on a portfolio.