Section 3

The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for an individual security. Which is the relevant risk variable and why is it relevant? Why is the other risk variable not relevant?

Market risk ________.   a. is equal to the rate of return generated by a risk-free asset b. cannot be eliminated, as it is non-diversifiable c. is synonymous with diversifiable risk d. is synonymous with financial risk

List which of the following statement(s) concerning risk are correct? 1. Nondiversifiable risk is measured by beta. II. The risk premium increases as diversifiable risk increases. III. Systematic risk is another name for nondiversifiable risk. IV. Diversifiable risks are market risks you cannot avoid.

2 i.Discuss the importance of using benchmarks in evaluating portfolio performance                              ii. Explain the concept of risk tolerance and how it differs from risk appetite                      iii. Describe the difference between inherent risk and residual risk in investing                                                      iv. Explain how the APT differs from the CAPM in terms of underlying assumptions and factors considered          v. Explain the role of diversification in CAPM

Please answer both QUESTION 7 According to the capital asset pricing model (CAPM), fairly priced securities should have A. A non-zero alpha. в.A fair return based on the level of systematic risk. C. A fair return based on the level of unsystematic risk. D.A beta of 1. QUESTION 8 Diversification can increase fair return. True False

The difference between the market rate and the risk-free rate is the Blank______. Multiple choice question. premium on risk-free rate risk-free return market risk premium market risk return

Which one of the following statements is correct concerning unsystematic risk? An investor is rewarded for assuming unsystematic risk. Beta measures the level of unsystematic risk inherent in an individual security. Eliminating unsystematic risk is the responsibility of the individual investor. Standard deviation is a measure of unsystematic risk. Unsystematic risk is rewarded when it exceeds the market level of unsystematic risk. оо O O

Which of the following is the correct equation of the capital asset pricing model (CAPM)? (E(Ri) denotes the expected return on a security, Rf denotes the risk-free rate, [E(RM) − Rf] denotes the market risk premium, and βi denotes the amount of systematic risk present in the security.) Multiple choice question. E(Ri) = Rf + [E(RM) – Rf] × βi E(Ri) = Rf – [E(RM) + Rf] × βi E(Ri) = Rf – [E(RM) – Rf] × βi E(Ri) = Rf + [Rf− E(RM)] × βi

Which of the statements about the Arbitrage Pricing Theory MUST BE TRUE. I. There is only one systematic risk, the market risk. II. The market risk factor must be one of many systematic risk factors. III. Individual assets may have a positive or negative alpha A. I only B. II only C. III only D. None of the above

Which of the following risks are reduced as more securities are added to the underlying portfolio? More than one answer may be correct. Multiple select question. Asset-specific risk Systematic risk Unique risk Market risk Unsystematic risk

Which of the following statements is FALSE? i. The amount of a portfolio's risk that is diversified away depends on risk of assets that you add it to ii. The amount of a portfolio's risk that is diversified away depends on market risk premium iii. The amount of a portfolio's risk that is diversified away depends on risk-free rate of interest iv. The amount of a portfolio's risk that is diversified away depends on weights of the assets that you add it to O i and ii O ii and iii iii and iv O i and iv O ii, iii and iv

identify the assumptions underlying the interest coverage ratio appropriate measure for analyzing long-term solvency risk?  Alternatively, can you identify the assumptions underlying the interest coverage ratio appropriate measure for analyzing short-term solvency risk?

in broad terms, why are some risks diversifiable? Why are some risks non- diversifiable? Does it follow that an investor can control the level of unsystematic risk in a portfolio, but not the level of systematic risk? Substantiate your answer with real world examples

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Why does standalone risk differ from portfolio risk? Explain and give examples! Relates your answer with CAPM!

Which one of the following is the formula that explains the relationship between the expected returnon a security and the level of that security's systematic risk?Select one:a. Time value of money equationb. Unsystematic risk equationc. Expected risk formulad. Market performance equatione. Capital asset pricing model

Which statement is not true regarding the market portfolio? Group of answer choices a. It includes all publicly-traded financial assets. b. It lies on the efficient frontier. c. All securities in the market portfolio are held in proportion to their market values. d. It is the tangency point between the capital market line and the indifference curve.

Indicate why you agree or disagree with justifications to the following statements: (i) “As a percentage of the total risk, the unsystematic risk of a diversified portfolio is greater than that of an individual asset.”