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i. What are the assumptions underlying the CAPM? ii. What is meant by the market portfolio?iii. Sketch the capital market line and the efficient frontier when borrowing and lending rates are equal. Label the axes and important points of your sketch. iv. Do the same for the Security Market Line v. Would you expect firms with high operating leverage to have higher betas?Explain! Step by step correct answer

Which statement is false regarding the Capital Asset Pricing Model?      A. The beta coefficient of a stock is constant.   B. The risk free rate is usually based on the treasury bill yield.   C. Market risk premium is the difference between market return and the risk free rate.   D. The cost of retained earnings is equal to the cost of new shares issued.

i. What are the assumptions underlying the CAPM? ii. What is meant by the market portfolio?iii. Sketch the capital market line and the efficient frontier when borrowing and lending rates are equal. Label the axes and important points of your sketch. iv. Do the same for the Security Market Line v. Would you expect firms with high operating leverage to have higher betas?Explain!

Which of the following is correct with regards to Theories of Term Structure?   When the shape of the yield curve depends on investors’ expectations about prospective prevailing interest rates, the Pure Exception Theory is being applied. When the economic outlook is improving, the yield curve inverts as it reflects no changes in inflation premium. The liquidity preference theory suggests that long-term rates are generally higher than short-term rates since investors perceive more liquidity in long-term investments. Under the Market segmentation theory, there is an apparent relationship between the yield curve and the prevailing rate of returns in each market segment.

Which of the following statements is true?   A.   Because of flotation costs, dollars raised by retaining earnings must work harder than dollars raised by selling new shares.   B.   All other things being equal, a call option price will increase, and a put option price will decrease if an exercise price increases.   C.   Security market line (SML) plots return against total risk which is measured by the standard deviation of returns.   D.   Because potential long-term returns, income from rent-payments, diversification, and inflation hedge, real-estate would be a good investment.

How does the Efficient Market Hypothesis (EMH) explain stock price behavior, and what are the implications for investors? Describe the three forms of EMH and discuss whether active or passive management is more suitable in light of this theory.

according to capm the expected return on equity includes a reward for: a. market risk and specific risk b. Specific risk only c. Time value of money and market risk  d. Diversification and portfolio risk  e. Time value of money and specific risk

Question 2:                                                     State whether the following statements are true or false.     Efficient Market Hypothesis means Securities are normally in equilibrium and are “fairly priced. The market is IN equilibrium when the required rate of return larger than the dividend growth rate.

Which statement is correct, all else held constant? A. If you have both the dividend growth and the security market line's costs of equity, you should use the higher of the two estimates when computing WACC. B. The aftertax cost of debt increases when the market price of a bond increases. C. A decrease in a firm's WACC will increase the attractiveness of the firm's investment options. D. Beta is used to compute the return on equity and the standard deviation is used to compute the return on preferred.

An efficient capital market is best defined as a market in which security prices reflect which one of the following?   Multiple Choice A  Current inflation B  A risk premium C  All available information D  The historical arithmetic rate of return E  The historical geometric rate of return

Assess the following statements: I. If the yield curve is upward sloping, some investors may attempt to benefit from the higher yields on longer-term securities, even when they have funds for only a short period of time. This strategy is known as riding the yield curve. II. The segmented markets theory suggests that although investors and borrowers may normally concentrate on a particular natural maturity market, certain events may cause them to wander from it. III. Based on the expectations theoly of the term structure of interest rates, a flat or inverted yield curve is most commonly interpreted to signal that that the economy will strengthen in the near future. IV. The forward rate is commonly used to represent the market's forecast of the future interest rate. All statements are correct. Only one statement is correct. Two statements are correct. OOnly one statement is incorrect.

6. Which of the following is NOT an assumption used in deriving the Capital Asset Pricing Model (CAPM)? A) Investors have homogeneous expectations regarding the volatilities, correlation, and expected returns of securities. B) Investors have homogeneous risk-averse preferences toward taking on risk. C) Investors hold only efficient portfolios of traded securities, that is portfolios that yield the maximum expected return for the given level of volatility. D) Investors can buy and sell all securities at competitive market prices without incurring taxes or transactions cost and can borrow and lend at the risk-free interest rate.

What is the appropriate required return of CSB on this financial accounting question?

If the liquidity preference hypothesis is true, what shape should the term structure curve have in a period where interest rates are expected to be constant?a. Upward sloping.b. Downward sloping.c. Flat.