A firms beta:Answer choices below:A) measures the systematic risk for the leading firms in a market that can be diversified.B) measures the systematic risk for the leading firms in a market that might not bediversifiable.C) measures the systematic risk for a firm or industry that cannot be diversified.D) measures the systematic risk for a firm or industry that can be diversified.

The incorrect answers are:A) measures the systematic risk for the leading firms in a market that can…

Answered: A firms beta: Answer choices below: A)…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 12QTD

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What does beta represent? Multiple Choice Beta is a measure of covariance standardized by the variance of the market. This adjusts the risk of the firm to be relative to the risk of the market. Beta is the extra income earned on an investment that cannot be explained by systematic risk or unsystematic risk. Beta is related to the return on risk-free assets. Beta is always positive or O, it cannot be negative because stock prices cannot be negative.
How can a firm’s managers influence market risk as reflectedin beta?
Using examples, explain how firms are affected by both systematic and firm-specific risk. What is the risk premium?
What is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.
Which is true in relation to stock market efficiency? A.Market Price and Intrinsic value are inputs in determining whether a share is overvalued or undervalued B. If markets are truly efficient, each share prices should have a high deviation from its intrinsic value C. Intrinsic Value is readily observed from the stock market daily reports D. Large companies which is followed by many analyst are generally considered as highly inefficient
In the capital asset pricing model, the general risk preferences of investors in the marketplace are reflected by ________. the level of the security market line the slope of the security market line the difference between the beta and the risk-free rate the risk-free rate
What does Jensen's alpha measure? a. An investor's reward in proportion to their assumption of systematic risk b. The abnormal return of an asset, defined as the degree to which its actual return exceeds that predicted by the capital asset pricing model c. The degree to which diversifiable risk is eliminated d. How much reward an investor is getting for each unit of risk assumed
According to the capital asset pricing model (CAPM), which of the following statements is true (only of them is): (a) A share with more total risk should provide a higher return than one with less total risk. (b) A share with more idiosyncratic risk should provide a higher return than one with less idiosyncratic risk. (c) A share with more systematic risk should provide a higher return than one with less systematic risk. (d) Only a share with no risk (either systematic or idiosyncratic) should pay the risk free rate. (e) The expected market return is the appropriate discount rate of risky projects.
What does beta measure?
Which of the following statements about the Fama-French three-factor model is wrong: A. Company size has an explanatory power in explaining the portfolio returns. B. Market risk has an explanatory power in explaining the portfolio returns. C. Book-to-market value companies has an explanatory power in explaining the portfolio returns. D. None of these factors. E. All of these factors.
Exposure to systematic or market risk can be reduced by? A. adding low or negative beta stocks to the portfolio. B. investing in a variety of economic sectors. C. cannot be reduced or avoided. D. diversifying internationally.
Which of the following statements is CORRECT? a. The SML shows the relationship between companies' required returns and their diversifiable risks. The slope and intercept of this line cannot be influenced by a firm's managers, but the position of the company on the line can be influenced by its managers. b. Suppose you plotted the returns of a given stock against those of the market, and you found that the slope of the regression line was negative. The CAPM would indicate that the required rate of return on the stock should be less than the risk-free rate for a well-diversified investor, assuming investors expect the observed relationship to continue on into the future. c. If investors become less risk averse, the slope of the Security Market Line will increase. d. If a company increases its use of debt, this is likely to cause the slope of its SML to increase, indicating a higher required return on the stock. e. The slope of the SML is determined by the value of beta.

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