Corporate Quiz #3

Preferred shares are referred to as preferred because their votes weigh disproportionately in determining who serves on the board of directors.

False

In practice, the standard deviation of a stock portfolio is generally less than the than the portfolio-weighted average of the standard deviations of the individual stocks.

True

The bid price for a stock will generally be larger than the ask price.

False

Empirical evidence that markets are not weak form efficient would also be evidence that markets are not semi-strong form efficient.

True

All else equal, an increase in the expected market risk premium would lead to an increase in stock prices.

False

Minority shareholders prefer cumulative voting to straight voting.

True

ECNs are computer systems that allow investors to trade directly with one another without going through a dealer.

True

Front running is one of the NYSE's advantages over Nasdaq in their competition for new stock listings.

False

Assuming no taxes, from the close of trading the day before the ex-dividend date to the open of trading on the ex-dividend date the stock price will generally fall by the amount of the dividend.

True

The total return on a security is made up a two components: the capital gains component and the dividend yield.

True

Research has shown that the number of stocks it takes to build a well-diversified portfolio has decreased in recent years.

False

If investors become less risk averse, the slope of the Security Market Line (SML) will increase.

False

If the markets are efficient in the weak form, then prices will adjust immediately to all public information.

False

If a stock is overpriced it would plot above the security market line (with expected return on the y-axis and beta on the x-axis).

False

By buying securities on margin, an investor magnifies both the upside potential and the downside risk.

True

According to CAPM, stocks with negative betas will have expected returns lower than the risk-free rate.

True

As a risk measure standard deviation measures both systematic and idiosyncratic risk.

True

Stocks with greater betas have more avoidable risk.

False

The efficient frontier is the set of securities or combinations of securities that have the highest return for a given level of risk.

True

A proxy fight typically refers to a competition to gain enough shareholder votes to determine who will serve on the board of directors.

True

If markets are efficient, stock prices should rise and fall with expected seasonal variation in earnings.

False

Unlike the NYSE and Nasdaq, ECN's have no dealers or market makers

True

The total return on a stock is made up of 2 components: the capital gains component and the dividend yield component.

True

If you have $5000 and borrow an additional $2000 and invest the total amount in the market portfolio, the beta of your portfolio will be 1.4.

True

Commission brokers generally earn their profits from the bid-ask spread

False

Standard deviation is used to measure an asset's systematic risk.

False

Cumulative voting is shareholder friendly (not mgmt friendly).

True

Computing avg growth rate of dividends from historical data is backward looking (TRUE). Inferring the growth rate of dividends from observed stock prices provides a forward looking estimate of dividend growth.

True

OPEC meets and decides to increase oil production, sending the price of a barrel of oil 15% lower (which would make gas cheaper). This would be an example of systematic risk.

True

An increase in the required rate of return for a stock will increase its market value

False

The efficient frontier is the set of securities or combos of securities which have the lowest risk for a given level of return.

True

Warren Buffet has consistently outperformed the market for decades. although there is small prob this could be luck, if he continues to outperform the market, his record would be evidence against weak form market efficiency.

False

For a stock that has declared a dividend, you must purchase the stock on or before the ex-dividend day in order to obtain the dividend.

False

The benefits of portfolio diversification are greater when stocks are more closely positively correlated.

False

If world events cause investors to be more risk averse, we would predict that the expected market risk premium would decrease.

False

A share of preferred stock is generally easier to value than a share of common stock.

True

Adding stocks to a portfolio generally lowers the level of systematic risk of the portfolio

False

The slope of the SML is the beta of the asset.

False

Recent research has shown that investors that have a portfolio that is highly concentrated in just a few securities are taking on a lot more risk than they were 20-30 yrs ago

True

As a common shareholder in a firm, the preemptive right allows you to vote important firm decisions like mergers and acquisitions.

False

A broad decline in consumer spending would be an example of systematic risk.

True

If markets are strong form efficient, the laws against insider trading are unnecessary.

True

Your firm's common stock has a beta of 1.5. This suggests your expected return will be 50% higher than the avg stock.

False

For a stock that has declared a dividend, the ex div day is the last day you can purchase the stock and still receive the dividend

False

If the correlation of the market with stock A is twice as large as the corr of the market with stock B then the beta of A will be twice as large as the beta of B

False

An asset's risk premium is the diff btwn the return on the asset and the return on the market portfolio

False

Slope of SML is the market risk premium

True

Beta is a measure of market risk.

True

Stock brokers generally buy and sell securities from their own inventory.

False

In order to use the growing perpetuity formula to value the share of a stock, the projected growth rate must be greater than the required rate of return.

False

Your roommate just made $10,000 in one day trading stocks. This is evidence that the stock market is not efficient.

False

The dividend yield on a common stock is the annual dividend payment divided by the par value.

False

The preemptive right of equity holders is the right to share proportionately in any new stock sold.

True

The weak form of the efficient market hypothesis suggests that it is impossible to make abnormal returns by exploiting past trade (price and volume) info.

True

An increase in the required rate of return for a stock will decrease its market value.

True

The efficient frontier describes the reaction of prices to new information.

False

If an asset is held in isolation, ?^2 is a more appropriate measure of risk than beta.

True

If a stock plots above the SML in the beta/return space (beta on x, return on y), it would be considered underpriced.

True

Diversification works because forming stocks into a portfolio reduces the standard deviation of each stock in the portfolio.

False

The market portfolio will have a beta of 0.

False

A broad, unexpected increase in consumer spending would be an example of systematic risk.

True

Because investors can eliminate unsystematic risk, they do not require a risk premium for bearing it.

True

When a stock pays a large dividend, the price generally falls by the amount of the dividend and the expected return increases.

False

Liquid stocks tend to have small spreads between the bid and ask price.

True

A proxy is a written authorization for someone else to vote your shares (TRUE). A proxy contest is when 2 or more groups are competing to collect proxies to prevail in a matter up for shareholder vote (ex. election of directors).

True

Owners of cumulative preferred shares are allocated votes (for director) equal to the number of open spots multiplied by the number of shares held.

False

A firm with high variance will have a higher beta than one with lower variance (all else equal)

True

If you have $5000 and invest $4000 in the market portfolio and put the rest in Treasury Bills, the beta of your portfolio will be 0.8.

True

Standard deviation is larger than beta, since total risk the sum of systematic risk and firm specific risk.

False

Pre-emptive rights are an anti-dilution mechanism that allows investors to share proportionately in any new stock sold.

True

Calculating the expected return of a portfolio using the dividend stream of the portfolio as a whole produces a higher return than calculating the weighted average of the expected returns of the individual stocks that make up the portfolio.

False

Relative to the SML, underpriced securities have positive alphas.

True

If you are a long-time CEO at a company, you would likely prefer staggered to non-staggered board elections.

True

If you submit a limit order to sell a stock for $10, your order will not execute if the price falls below $10.

True

The CAPM relation between risk and return assumes investors hold diversified portfolios.

True

NYSE Specialists generally earn their profits from trading commissions.

False

According to the capital asset pricing model, accurately priced investments should plot along the SML.

True

Fora stock that has declared a dividend, the ex dividend day is the last day you can purchase the stock and still receive the dividend.

False

An increase in the risk-free rate will decrease a security's beta.

False

Since the returns of well-diversified portfolios move very much in line with the returns for all stocks in the market, portfolio betas are equal to the beta for the market which is 1.0

False

Two securities with the same standard deviation of returns will likely have the same expected return.

False

Without investment research analysts, markets would be less efficient.

True

Stock A has a beta of 1.0 and very high firm-specific risk. If the expected return on the market is 20%, then according to the CAPM the expected return on Stock A should likely be higher than 20%.

False

If bad news causes a stock's price to fall, its expected return could go either up or down (or no change).

True

Cumulative voting gives more power to minority shareholders.

True

An asset on the efficient frontier is unlikely to have firm-specific risk.

True

A zero-beta security will have an expected return equal to the market return.

False

Commission brokers generally earn their profits from the bid-ask spread.

False

If investors expected inflation to increase in the future, and they also become less risk averse, the SML would shift up and the slope would decrease.

True

If you own 51% of the voting common shares in a corporation, you would be unlikely to instigate a proxy fight.

True

Firm ABC's common shareholders receive a dividend yield of 0.25%. Given the low dividend yield, rational investors will generally be better off depositing their savings in a bank.

False

ECNs (electronic communication networks) are computerized trading systems that automatically match buy and sell orders without the need for stock dealers.

True

In theory, if two assets have the same expected cash flows they will always have the same price.

False

Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.

False

If you have $4000 and borrow an additional $1000 and invest the total amount in a stock with a beta equal to 0.8, the beta of your portfolio will be 1.0.

True

Portfolio betas range between -1.0 and 1.0.

False

Suppose that over the last ten to fifteen years significantly large numbers of investors have been able to earn abnormal profits from using firms' publicly available information to forecast earnings. This would be evidence that the markets are not semi-st

True

Unlike the NYSE, the Nasdaq often has several dealers for each listed security.

True

For a stock that has declared a dividend, you must purchase the stock on or before the ex-dividend day in order to obtain the dividend.

False

The preemptive right of equity holders is the right to share proportionately in any new stock sold.

True

If a stock portfolio is well diversified, then the portfolio variance could be less than the variance of the least risky stock in the portfolio.

True

Adding more stocks to a portfolio generally lowers the idiosyncratic risk of the stocks in the portfolio.

False

The price at which you can sell stock to a dealer is called the bid price.

True

Empirical evidence that markets are not strong form efficient would also be evidence that markets are not semi-strong form efficient.

False

When buying a stock on margin, the portfolio weight on the stock could be greater than 100%.

True

If markets are strong form efficient, then laws against insider trading are unnecessary.

True

A stock has paid a $1 dividend for the past 15 years and is expected to continue paying a dollar per share long into the future. The stock should be worth $1.

False

The benefits of portfolio diversification are greater when stocks are less positively correlated.

True

Stocks with more systematic risk also have more firm-specific risk.

False

Portfolio betas range between -1.0 and 1.0.

False

A dividend-paying stock has a total return for the year of -6.5%. The stock must have had a negative capital gains yield.

True

The dividend growth rate is inversely related to a stock's market price.

False

In public corporations, shareholders typically vote to determine the amount of dividends to be paid per share.

False

Stock X trades much more often than Stock Y. The bid-ask spread for Y is likely to be larger than for X.

False

ECN's can be described a computer system that facilitates direct trading by investors without going through a dealer.

True

NYSE Specialists generally earn their profits from trading commissions

False

As a risk measure standard deviation captures both systematic and idiosyncratic risk.

True

Cumulative preferred shares are more valuable than comparable non-cumulative shares.

True

Cumulative voting and staggered voting are shareholder friendly (as opposed to management friendly).

False

According to the CAPM, there is no reward for bearing diversifiable risk

True

According to the capital asset pricing model, accurately priced investments should plot along the security market line.

True

If you have $5000 and borrow an additional $5000 and invest the total amount in the market portfolio, the beta of your portfolio will be 2.

True

The price at which you can buy stock from a dealer is called the bid price

False

The semi-strong form of the efficient market hypothesis suggests that it is impossible to consistently make abnormal profits by exploiting publicly available information.

True

According to portfolio theory, investors generally receive more returns the more idiosyncratic risk they have in their portfolio.

False

Typically, as more securities are added to a portfolio, total risk is expected to fall at a decreasing rate.

True

Stock X trades much more actively than stock Y. The bid-ask spread for X is likely to be larger than for Y.

False

If you submit a limit order to buy a stock for $10, your order will not execute if the price falls below $10.

False

Minority shareholders generally prefer staggered board member elections.

False

A proxy fight is a battle for the right to exercise the voting rights of a share owner

True

Proponents of the Efficient Market Hypothesis typically advocate a passive investment strategy.

True

Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.

False

The total return on a security is made up a two components: the capital gains component and the dividend yield.

True

In order to receive the current cash dividend, an investor must purchase the stock before the dividend declaration date.

False

According the Efficient Markets Hypothesis, if a market is "semi-strong form" efficient, it is also "weak form" efficient.

True

In theory, if two assets have the same expected cash flows they will always have the same price.

False

Nasdaq market makers generally earn their profits from the bid-ask spread

True

According to the capital asset pricing model, a stock with a negative beta will have a negative expected return.

False

If an event causes a stock's beta to increase without any change to expected cash flows, we would expect the price to drop and the expected return to increase.

True

Stock X has an expected return of 10% and its standard deviation is 12%. Stock Y has an expected return of 12% and its standard deviation is 10%. Stock X could not lie on the efficient frontier.

True

Preferred shares are referred to as preferred because their votes weigh disproportionately in determining who serves on the board of directors.

False

In practice, the standard deviation of a stock portfolio is generally less than the than the portfolio-weighted average of the standard deviations of the individual stocks.

True

The bid price for a stock will generally be larger than the ask price.

False

Empirical evidence that markets are not weak form efficient would also be evidence that markets are not semi-strong form efficient.

True

All else equal, an increase in the expected market risk premium would lead to an increase in stock prices.

False

Minority shareholders prefer cumulative voting to straight voting.

True

ECNs are computer systems that allow investors to trade directly with one another without going through a dealer.

True

Front running is one of the NYSE's advantages over Nasdaq in their competition for new stock listings.

False

Assuming no taxes, from the close of trading the day before the ex-dividend date to the open of trading on the ex-dividend date the stock price will generally fall by the amount of the dividend.

True

The total return on a security is made up a two components: the capital gains component and the dividend yield.

True

Research has shown that the number of stocks it takes to build a well-diversified portfolio has decreased in recent years.

False

If investors become less risk averse, the slope of the Security Market Line (SML) will increase.

False

If the markets are efficient in the weak form, then prices will adjust immediately to all public information.

False

If a stock is overpriced it would plot above the security market line (with expected return on the y-axis and beta on the x-axis).

False

By buying securities on margin, an investor magnifies both the upside potential and the downside risk.

True

According to CAPM, stocks with negative betas will have expected returns lower than the risk-free rate.

True

As a risk measure standard deviation measures both systematic and idiosyncratic risk.

True

Stocks with greater betas have more avoidable risk.

False

The efficient frontier is the set of securities or combinations of securities that have the highest return for a given level of risk.

True

A proxy fight typically refers to a competition to gain enough shareholder votes to determine who will serve on the board of directors.

True

If markets are efficient, stock prices should rise and fall with expected seasonal variation in earnings.

False

Unlike the NYSE and Nasdaq, ECN's have no dealers or market makers

True

The total return on a stock is made up of 2 components: the capital gains component and the dividend yield component.

True

If you have $5000 and borrow an additional $2000 and invest the total amount in the market portfolio, the beta of your portfolio will be 1.4.

True

Commission brokers generally earn their profits from the bid-ask spread

False

Standard deviation is used to measure an asset's systematic risk.

False

Cumulative voting is shareholder friendly (not mgmt friendly).

True

Computing avg growth rate of dividends from historical data is backward looking (TRUE). Inferring the growth rate of dividends from observed stock prices provides a forward looking estimate of dividend growth.

True

OPEC meets and decides to increase oil production, sending the price of a barrel of oil 15% lower (which would make gas cheaper). This would be an example of systematic risk.

True

An increase in the required rate of return for a stock will increase its market value

False

The efficient frontier is the set of securities or combos of securities which have the lowest risk for a given level of return.

True

Warren Buffet has consistently outperformed the market for decades. although there is small prob this could be luck, if he continues to outperform the market, his record would be evidence against weak form market efficiency.

False

For a stock that has declared a dividend, you must purchase the stock on or before the ex-dividend day in order to obtain the dividend.

False

The benefits of portfolio diversification are greater when stocks are more closely positively correlated.

False

If world events cause investors to be more risk averse, we would predict that the expected market risk premium would decrease.

False

A share of preferred stock is generally easier to value than a share of common stock.

True

Adding stocks to a portfolio generally lowers the level of systematic risk of the portfolio

False

The slope of the SML is the beta of the asset.

False

Recent research has shown that investors that have a portfolio that is highly concentrated in just a few securities are taking on a lot more risk than they were 20-30 yrs ago

True

As a common shareholder in a firm, the preemptive right allows you to vote important firm decisions like mergers and acquisitions.

False

A broad decline in consumer spending would be an example of systematic risk.

True

If markets are strong form efficient, the laws against insider trading are unnecessary.

True

Your firm's common stock has a beta of 1.5. This suggests your expected return will be 50% higher than the avg stock.

False

For a stock that has declared a dividend, the ex div day is the last day you can purchase the stock and still receive the dividend

False

If the correlation of the market with stock A is twice as large as the corr of the market with stock B then the beta of A will be twice as large as the beta of B

False

An asset's risk premium is the diff btwn the return on the asset and the return on the market portfolio

False

Slope of SML is the market risk premium

True

Beta is a measure of market risk.

True

Stock brokers generally buy and sell securities from their own inventory.

False

In order to use the growing perpetuity formula to value the share of a stock, the projected growth rate must be greater than the required rate of return.

False

Your roommate just made $10,000 in one day trading stocks. This is evidence that the stock market is not efficient.

False

The dividend yield on a common stock is the annual dividend payment divided by the par value.

False

The preemptive right of equity holders is the right to share proportionately in any new stock sold.

True

The weak form of the efficient market hypothesis suggests that it is impossible to make abnormal returns by exploiting past trade (price and volume) info.

True

An increase in the required rate of return for a stock will decrease its market value.

True

The efficient frontier describes the reaction of prices to new information.

False

If an asset is held in isolation, ?^2 is a more appropriate measure of risk than beta.

True

If a stock plots above the SML in the beta/return space (beta on x, return on y), it would be considered underpriced.

True

Diversification works because forming stocks into a portfolio reduces the standard deviation of each stock in the portfolio.

False

The market portfolio will have a beta of 0.

False

A broad, unexpected increase in consumer spending would be an example of systematic risk.

True

Because investors can eliminate unsystematic risk, they do not require a risk premium for bearing it.

True

When a stock pays a large dividend, the price generally falls by the amount of the dividend and the expected return increases.

False

Liquid stocks tend to have small spreads between the bid and ask price.

True

A proxy is a written authorization for someone else to vote your shares (TRUE). A proxy contest is when 2 or more groups are competing to collect proxies to prevail in a matter up for shareholder vote (ex. election of directors).

True

Owners of cumulative preferred shares are allocated votes (for director) equal to the number of open spots multiplied by the number of shares held.

False

A firm with high variance will have a higher beta than one with lower variance (all else equal)

True

If you have $5000 and invest $4000 in the market portfolio and put the rest in Treasury Bills, the beta of your portfolio will be 0.8.

True

Standard deviation is larger than beta, since total risk the sum of systematic risk and firm specific risk.

False

Pre-emptive rights are an anti-dilution mechanism that allows investors to share proportionately in any new stock sold.

True

Calculating the expected return of a portfolio using the dividend stream of the portfolio as a whole produces a higher return than calculating the weighted average of the expected returns of the individual stocks that make up the portfolio.

False

Relative to the SML, underpriced securities have positive alphas.

True

If you are a long-time CEO at a company, you would likely prefer staggered to non-staggered board elections.

True

If you submit a limit order to sell a stock for $10, your order will not execute if the price falls below $10.

True

The CAPM relation between risk and return assumes investors hold diversified portfolios.

True

NYSE Specialists generally earn their profits from trading commissions.

False

According to the capital asset pricing model, accurately priced investments should plot along the SML.

True

Fora stock that has declared a dividend, the ex dividend day is the last day you can purchase the stock and still receive the dividend.

False

An increase in the risk-free rate will decrease a security's beta.

False

Since the returns of well-diversified portfolios move very much in line with the returns for all stocks in the market, portfolio betas are equal to the beta for the market which is 1.0

False

Two securities with the same standard deviation of returns will likely have the same expected return.

False

Without investment research analysts, markets would be less efficient.

True

Stock A has a beta of 1.0 and very high firm-specific risk. If the expected return on the market is 20%, then according to the CAPM the expected return on Stock A should likely be higher than 20%.

False

If bad news causes a stock's price to fall, its expected return could go either up or down (or no change).

True

Cumulative voting gives more power to minority shareholders.

True

An asset on the efficient frontier is unlikely to have firm-specific risk.

True

A zero-beta security will have an expected return equal to the market return.

False

Commission brokers generally earn their profits from the bid-ask spread.

False

If investors expected inflation to increase in the future, and they also become less risk averse, the SML would shift up and the slope would decrease.

True

If you own 51% of the voting common shares in a corporation, you would be unlikely to instigate a proxy fight.

True

Firm ABC's common shareholders receive a dividend yield of 0.25%. Given the low dividend yield, rational investors will generally be better off depositing their savings in a bank.

False

ECNs (electronic communication networks) are computerized trading systems that automatically match buy and sell orders without the need for stock dealers.

True

In theory, if two assets have the same expected cash flows they will always have the same price.

False

Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.

False

If you have $4000 and borrow an additional $1000 and invest the total amount in a stock with a beta equal to 0.8, the beta of your portfolio will be 1.0.

True

Portfolio betas range between -1.0 and 1.0.

False

Suppose that over the last ten to fifteen years significantly large numbers of investors have been able to earn abnormal profits from using firms' publicly available information to forecast earnings. This would be evidence that the markets are not semi-st

True

Unlike the NYSE, the Nasdaq often has several dealers for each listed security.

True

For a stock that has declared a dividend, you must purchase the stock on or before the ex-dividend day in order to obtain the dividend.

False

The preemptive right of equity holders is the right to share proportionately in any new stock sold.

True

If a stock portfolio is well diversified, then the portfolio variance could be less than the variance of the least risky stock in the portfolio.

True

Adding more stocks to a portfolio generally lowers the idiosyncratic risk of the stocks in the portfolio.

False

The price at which you can sell stock to a dealer is called the bid price.

True

Empirical evidence that markets are not strong form efficient would also be evidence that markets are not semi-strong form efficient.

False

When buying a stock on margin, the portfolio weight on the stock could be greater than 100%.

True

If markets are strong form efficient, then laws against insider trading are unnecessary.

True

A stock has paid a $1 dividend for the past 15 years and is expected to continue paying a dollar per share long into the future. The stock should be worth $1.

False

The benefits of portfolio diversification are greater when stocks are less positively correlated.

True

Stocks with more systematic risk also have more firm-specific risk.

False

Portfolio betas range between -1.0 and 1.0.

False

A dividend-paying stock has a total return for the year of -6.5%. The stock must have had a negative capital gains yield.

True

The dividend growth rate is inversely related to a stock's market price.

False

In public corporations, shareholders typically vote to determine the amount of dividends to be paid per share.

False

Stock X trades much more often than Stock Y. The bid-ask spread for Y is likely to be larger than for X.

False

ECN's can be described a computer system that facilitates direct trading by investors without going through a dealer.

True

NYSE Specialists generally earn their profits from trading commissions

False

As a risk measure standard deviation captures both systematic and idiosyncratic risk.

True

Cumulative preferred shares are more valuable than comparable non-cumulative shares.

True

Cumulative voting and staggered voting are shareholder friendly (as opposed to management friendly).

False

According to the CAPM, there is no reward for bearing diversifiable risk

True

According to the capital asset pricing model, accurately priced investments should plot along the security market line.

True

If you have $5000 and borrow an additional $5000 and invest the total amount in the market portfolio, the beta of your portfolio will be 2.

True

The price at which you can buy stock from a dealer is called the bid price

False

The semi-strong form of the efficient market hypothesis suggests that it is impossible to consistently make abnormal profits by exploiting publicly available information.

True

According to portfolio theory, investors generally receive more returns the more idiosyncratic risk they have in their portfolio.

False

Typically, as more securities are added to a portfolio, total risk is expected to fall at a decreasing rate.

True

Stock X trades much more actively than stock Y. The bid-ask spread for X is likely to be larger than for Y.

False

If you submit a limit order to buy a stock for $10, your order will not execute if the price falls below $10.

False

Minority shareholders generally prefer staggered board member elections.

False

A proxy fight is a battle for the right to exercise the voting rights of a share owner

True

Proponents of the Efficient Market Hypothesis typically advocate a passive investment strategy.

True

Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.

False

The total return on a security is made up a two components: the capital gains component and the dividend yield.

True

In order to receive the current cash dividend, an investor must purchase the stock before the dividend declaration date.

False

According the Efficient Markets Hypothesis, if a market is "semi-strong form" efficient, it is also "weak form" efficient.

True

In theory, if two assets have the same expected cash flows they will always have the same price.

False

Nasdaq market makers generally earn their profits from the bid-ask spread

True

According to the capital asset pricing model, a stock with a negative beta will have a negative expected return.

False

If an event causes a stock's beta to increase without any change to expected cash flows, we would expect the price to drop and the expected return to increase.

True

Stock X has an expected return of 10% and its standard deviation is 12%. Stock Y has an expected return of 12% and its standard deviation is 10%. Stock X could not lie on the efficient frontier.

True