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Projects A and B are independent. Project A has an IRR of 14.1%o and Project B has an IRR of 12.5%. The crossover rate for Projects A and B is 8.5%. The required rate of return for both projects is 11.7% Which one of the following statements is correct? Insufficient information, need to know their NPVS. O a. O b. Reject both projects O C. Accept Project A and reject Project B O d. Accept Project B and reject Project A e. Accept both projects

According to the Capital Asset Pricing Model​ (CAPM), risky stocks pay a risk premium based on their level of systematic risk. ​ Thus, a risky stock should have a higher expected return than a​ risk-free security unless it has a zero or negative beta.     True   False

Which of the followings are required assumptions for the CAPM to hold?   a   Investors can borrow at the risk free rate b   Investors are allowed to short any company c   Investors have preference for high return and low volatility for their complete portfolio d   stocks with negative correlation to the market doesn't exist

Suppose you observe the following situation:Security               Beta              Expected ReturnDiamond Co        1.3                 0.2Spade Co             0.8               0.14                                                     (a) According to the above information, could we figure out the market return and risk-free rate? Explain your answer. (b) Discuss the possibility of including zero beta or negative beta assets in your portfolio. Explain the pros and cons of including these types of assets.

Which of the following statements is FALSE? OA. In theory, the market portfolio includes all risky assets that are available to investors 8. Based on the CAPM, the beta of the market portfolio is 1. OcBeta measures the sensitivity of a security to systematic risk factors OD. If we assume that the market portfolio (e.g., S&P 500) is efficient, then changes in the value of the market portfolio represent systematic shocks to the economy E. None of the above

The SML shows the return needed given risk as measured by beta. And there are situations where a stock might be mispriced relative to CAPM. Given the relationship with the security mark line (SML), if a stock is properly priced relative to CAPM , where would it plot on the graph relative to the SML?   A. on the Y-axis B. on the security market line C. below the security market line D. above the security market line

Your opinion is that CSCO has an expected rate of return of 0.13. It has a beta of 1.3. The risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the Capital Asset Pricing Model, this security is _________ Group of answer choices a. underpriced b. overpriced c. fairly priced d. None of the above

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The security market line (SML) is an equation that shows the relationship between risk as measured by beta and the required rates of return on individual securities. The SML equation is given below: ​ If a stock's expected return plots on or above the SML, then the stock's return is sufficient  to compensate the investor for risk. If a stock's expected return plots below the SML, the stock's return is insufficient to compensate the investor for risk.The SML line can change due to expected inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up or down parallel to the old SML. If risk aversion changes, then the SML plotted on a graph will rotate up or down becoming more or less steep if investors become more or less risk averse. A firm can influence market risk (hence its beta coefficient) through changes in the composition of its assets and through changes in the amount of debt it uses. Quantitative Problem: You are given the following…

Q1 .In an investment market , understanding the concept of undervalued and overvalued stock is very important . hence , a prudent investor must have good knowledge about beta, market rate of return and risk free rate of return b) Give a graphical example to present the positioning of- systematic risk- risk free rate of return - mareket rate of return- risk premium

According to the capital asset pricing model, what is the expected return on a security with a beta of zero? Multiple choice question. Zero The return on the market The market-risk premium The risk-free rate of return

Which of the following statements is CORRECT? a. The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio. b. An investor can eliminate almost all risk if he or she holds a very large and well diversified portfolio of stocks. c. Once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by even a small amount. d. An investor can eliminate almost all diversifiable risk if he or she holds a very large, well-diversified portfolio of stocks. e. An investor can eliminate almost all market risk if he or she holds a very large and well diversified portfolio of stocks.

According to the capital asset pricing model (CAPM), fairly priced securities should have __________.    Select one: a. A fair return based on the level of systematic risk. b. A beta of 1. c. A return equal to the market return. d. A fair return based on the level of unsystematic risk.

Question #1. Portfolio theory tends to define risky investments in terms of just two factors: expectedreturns and variance (or standard deviation) of those expected returns. What assumptions need to be made about investors and the expected investment returns (one assumption in each case) to justify this ‘two-factor’ approach? Are these assumptions justified in real life? Question #2. ‘The expected return from a portfolio of securities is the average of the expected returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ ‘The expected standard deviation of returns from a portfolio of securities is the average of the standard deviations of returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ Are these statements correct? Question #3. What can be said about the portfolio that is represented by any point along the efficientfrontier of risky investment…

True or false: Assume that expected returns and standard deviations for all securities (including the risk-free rate for borrowing and lending) are known. In this case, all investors will have the same optimal risky portfolio.

Which of the following statements is FALSE? A. When we combine many stocks in a large portfolio, the firm-specific risks for each stock will average out and be diversified. B. The volatility in a large portfolio will decline as the size of the portfolio increases until only the systematic risk remains. OC. The risk premium of a security is determined by its systematic risk and does not depend on its diversifiable risk. OD. Fluctuations of a stock's returns that are due to firm-specific news are common risks.

Which of the following statements is TRUE? O A. If the risk-free rate is 1.5% and the market risk premium is 6%, then the expected return on the market would be 4.5%. O B. CAPM is a model for relating unsystematic risk to the expected return on an asset. OC. According to CAPM, stocks with greater than average market risk would have an expected return lower than the expected return on the market. O D. If a company's beta is less than 1.0, then it is less risker than market.

Which of the following is TRUE?     To construct a capital market line, we use expected return as y-axis and beta as x-axis     On the capital market line debt securities are located to the right of the market portfolio     To construct a security market line, we use expected return as y-axis and beta as x-axis     Market portfolio lays at an intersection of the average indifference curve of a risk-averse investor and the efficient portfolio