Homework 3

Question 28 The type of the risk that can be eliminated by diversification is called (A) default risk. (B) interest rate risk. c) market risk. D unique risk.

Question 4 a)  “When choosing the appropriate group of risk factors to include in a multifactor Arbitrage Pricing Theory (APT) model, we must allow for both unsystematic and systematic sources of risk.” Comment on this statement, in no more than 100 words.

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.

Moving to another question will save this response. Quèstion 7 What is the other name for fim-specific risk? O Systematic risk O Market risk O Micro-cap risk O Undiversifiable risk O Diversifiable risk A Moving to another question will save this response. Mac 20 F3 O00 DO0 F4 esc F1 F2 #3 2$ 2 4 W E R

4.32 Investment risk analysis. The risk of a portfolio of financial assets is sometimes called investment risk. In general, in- vestment risk is typically measured by computing the vari- ance or standard deviation of the probability distribution that describes the decision maker's potential outcomes (gains or losses). The greater the variation in potential outcomes, the greater the uncertainty faced by the decision maker; the smaller the variation in potential outcomes, the more predictable the decision maker's gains or losses. The two discrete probability distributions given in the next table were developed from historical data. They describe the potential total physical damage losses next year to the fleets of delivery trucks of two different firms. Loss Next Year SO 500 NW 1,000 1,500 2,000 2.500 Firm A 3.000 3,500 4,000 4,500 5,000 Firm B Probability Loss Next Year 01 SO 0 .01 200 .01 700 1,200 1,700 2,200 2,700 3.200 3.700 4,200 4,700 30 .01 01 Probability 85984579985 .30 a.…

D3

Explain how pure risk has an adverse effect on the economy?

question 10 ,please qucikly thanks !!

7.1 Question 1 Which of the following statements about risk-averse investors is most accurate? A risk averse investor: A seeks out the investment with minimum risk, while return is not a major consideration. B will take additional investment risk if sufficiently compensated for this risk. C avoids participating in global equity markets. 7.2 Question 2 Evidence of risk aversion is best illustrated by a risk-return relationship that is: A negative. B neutral. C positive. 7.3 Question 3 With respect to an investor's utility function expressed as U(F) = E\F] – }¬V« (F), which of the following values for the measure of risk aversion has the least amount of risk aversion? A -4. B 0. C 4.

23

Ford Motors Corporation (F) General Motors Company (GM) Which company has a higher: Systematic Risk? Total Risk? Unsystematic Risk?

Question 6: How can a firm assess risk and how can internal controls systems help minimize the financial risk?

QUESTION 5 One of the arguments for the irrelevance of exchange rate exposure management is that: O a. Individual investors cannot hedge exchange rate exposure as effectively as big companies O b. Foreign exchange markets are perfectly efficient. O c. Purchasing power parity does not hold. Od. Cash Flows become less predictable. O e. Cash flows become more predictable. QUESTION 6 In a perfectly integrated financial market: O a. The real risk-adjusted returns of integrated markets should be higher than those of segmented markets Ob. There are no real risk-adjusted returns since markets are fully integrated. O C. The real risk-adjusted returns expected to prevail in each country and currency should be equal. Od. The real risk-adjusted returns should be lower than returns on segmented markets. O e. The real risk-adjusted returns on integrated markets should be higher than those of segmented markets.

Current Attempt in Progress If the expected rate of return for the market is not much greater than the risk-free rate of return, what does this suggest about the general level of compensation for bearing systematic risk? B I U T₂ T² Ix E = = 99 3 2. á T T

Statement 1: Fundamental analysis is superior to technical analysis because it gives accurate measure of thesecurity’s intrinsic value.Statement 2: Both fundamental and technical analysis can only give sensible investment decision.Statement 3: Both fundamental and technical analysis can bring accurate forecast for the future marketperformance when they are used by a security analyst.Statement 4: The end goal of fundamental and technical analysis is to give investors market foresight and forthem to understand factors affecting each security.Statement 5: Both fundamental and technical analysis is both useful but technical analysis can provide betterprice forecasting because information is on hand a. Only statements 1 and 3 are correct b. Only statements 2 and 4 are correct c. Only statements 1 and 2 are correct d. Only statements 3 and 4 are correct