A conservative approach to reinvesting projected cash flows (the reinvestment assumption) would use the Internal Rate of Return as an interest rate True False

Q: Which of the following is a false statement of the market price of risk found in the Capital Market…

A: Portfolios that blend risk and return optimally are represented by the capital market line (CML).…

Q: What is Internal Rate of Return - Variable Cash Flows with Reversion?  Please provide examples.

A: The internal rate of return is the one of the discounted techniques of capital budgeting which is…

Q: What differences between the daily market valuation of a traditional security and the valuation…

A: There is need of proper valuation of security there many methods of valuation.

Q: Economy Probability Stock A Stock B Recession -30% -20% 10% 5% 40% 15% Average Boom 0.25 0.50 0.25…

A: Formula for standard deviation in every state of economy is SD =(A-A bar)2*P where A=Return of stock…

Q: An inflation hedge is an asset that increases in value at a rate equal to or greater than the rate…

A: Hedging is technique of reducing risk. This reduction in risk also results typically in a decrease…

Q: 1. Lower duration means higher interest rates risk (inverse relationship). Select one: True False

A:

Q: Portfolio standard deviation is negatively associated with the covariance among the assets in the…

A: The portfolio standard deviation is the financial measure which computes the investment risk and…

Q: Explain whether you agree or disagree with the following statement:

A: Interest rate risk is the risk arising from the fluctuations in the interest rates. It depends…

Q: TRUE / FALSE The discount rate used to discount the value of future dollars can generally be…

A: The present value of an investment is the value of all future cash flows that have been discounted…

Q: With a decrease in time preference, the supply of loanable funds will increase.   Select one: True…

A: Loanable funds includes all forms of credit, such as loans, bonds, or savings deposits. There is an…

Q: The static GAP focuses on monitoring net interest income in the long term.   Select one: True…

A: The Static GAP focuses on monitoring net interest income in the short term but it can be calculated…

Q: A disadvantage of using the payback period to compare investmentalternatives is that it;

A: Payback period: The payback period is the time period required to recover the initial investment of…

Q: What is financial market equilibrium? And then explain its relation to required rate of return.

A: Financial market equilibrium: Financial market equilibrium is a condition in which money supply…

Q: cash flow frequ ot the same, one W oved: the period

A: Period interest rate approach : In simple words, the period interest rate approach refers to the…

Q: Assets are priced such that _____________________ increase with the riskiness of future payoffs. A)…

A: Solution:- Payoff means the amount which is receivable on maturity.

Q: Explain the difference between the unbiased expectations theory of the term structure of interest…

A: There are different theories that describe how the interest rates are set.

Q: is it possible for future prices to become negetive without violating the principle of no-arbitrage.…

A: Future prices refer to the price that two companies have agreed to pay or receive on a future day of…

Q: Instruction: For each statement, begin by answering whether the statement is true or false. If you…

A: Since you have posted the question with multiple sub-parts, we will solve the three first three…

Q: Explain Minsky’s Financial Instability Hypothesis and mention the assumptions of the model.

A: The financial instability model hypothesis is a financial and economical model that has been…

Q: Which of the following is not a discounted technique Select one: a. Net present value b. Discounted…

A: Discounted technique is a technique to determine the present value of future cash flows.

Q: If we are speaking about the CAPM model and undiversifiable risks.    Then what is meant by…

A: CAPM model The Capital asset pricing model (CAPM) refers to an idea that describes the systematic…

Q: ch of the folowing models CANNT be applied to measure the Value-at-Risk of a cash-flow portfolio?…

A: VaR is the value at risk that how much money of the portfolio is at risk and how much money…

Q: Both simple and compound interest represent the rate of return (ROR) on investments Select one: True…

A: Formula for simple interest = Principal x Interest x Time Formula for compound interest = Principal…

Q: The Capital Asset Pricing Model (CAPM) considers which type of risk in pricing the expected returns…

A: Capital Asset Pricing Model is used for pricing risky securities. It describes the risk and return…

Q: Which of the following is TRUE about liquidity? a. All assets should be put in liquid asset so that…

A: The simplicity with which an asset, or security, might  be changed into immediate cash without…

Q: if asset A has lower volatility than asset B, then it contributes less to the overall volatility…

A: Volatility is change in expected rate of assets from the mean return and it shows the risk involved…

Q: Examine (i) the relation between market returns and investor sentiment, and (ii) the relation…

A: the relationship between the market returns investor sentiment and conditional volatility is stated…

Q: Explain your answer assuming that all variables are constant except for the one mentioned:

A: Capital budgeting is a method used for finding the profitability of investment proposals. This…

Q: All else equal, as market interest rates fall, the present value of a future cash flow. the…

A: Present value is the equivalent today based on time value of money of the future cash flow that is…

Q: What is duration gap model? Explain the concept of duration. How duration measure can be used to…

A: Duration gap measures the mismatch between the duration of assets and liabilities held by a…

Q: The pure time value of money is known as the:   Multiple Choice   liquidity effect.   inflation…

A: The pure time value of money is the concept that money available today is worth more than the same…

Q: Is it true that the the wider the risk premium, the lower the price of a expected future cash flow?

A: Risk premium is the return the stock gives over the risk free asset. risk premium = Rs-Rf Wider risk…

Q: Unsystematic risk: is compensated for by the risk premium. is measured by standard deviation. is…

A: Unsystematic risk is the risk that the company faces on its own. It is different from systematic…

Q: A forward rate is the mathematical expectation of a future spot rate in risk neutral world. O True…

A: In general, a spot rate refers to the product's or instrument's present price or bond yield, whereas…

Q: Market risk embodies the following risks except: O a. Financial. O b. Interest rate. Tax. O d.…

A: Market risk is a undiversified risk which cannot be controlled. It is a systematic risk that affects…

Q: appropriate option (i) The rate of return method does not take care of timings of returns. (ii)…

A: Investment appraisal techniques are used to identify whether to invest or not in the project.   Rate…

Q: Which of the following statements is true?   Multiple Choice   When NPV is 0, the IRR is equal to…

A: Net present value (NPV) is the value of all the cash flow of the investment (positive and negative)…

Q: ) Finance Which one is a financial risk? Select one: a. Uncertainty about demand b. uncertainty…

A: Meaning of Financial risk is diffrent for different category of person. In case of individual who is…

Q: The risk-adjusted discount rate reduces investment. True or false?

A: The estimation of the present value of cash for high-risk investment is known as a risk-adjusted…

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.