a. All future prices and future dividends are expected values OFalse OTrue

Q: None

A: To determine the price today of claims that pay S(T)Q(T)​ and S(T)Q(T)​, we will use the given…

Q: The expected return for an individual asset is the sum of expected returns in each state of the…

A: Expected rate of return is the most likely and probable and average rate of return that can be…

Q: There is a --- impact of earnings on stock prices O a. Deductive O b. Positive O c. Normative O d.…

A: Earnings, also known as net income or profit, represent the amount of money a company has left over…

Q: Which of the following formulas is INCORRECT? O A. Div, EPS, X Dividend Payout Rate OB. E=(Div/P)+g…

A: In this question, we are required to identify the incorrect formula.

Q: If the expected rate of return for the market is not much greater than the risk-free rate of return,…

A: If the expected rate of return for the market is not much greater than the risk-free rate of return,…

Q: When would I use the arithmetic average risk premium (as opposed to the geometric risk premium)?

A: The arithmetic average risk premium is calculated as the difference between the average return of an…

Q: You are considering a bond whose market price is less than its par value. Which one of the following…

A: Market Value is the current price at which a bond can be bought or sold in the secondary market. It…

Q: The dividend yield (i.e. D1/P0) is a good measure of the expected return on a common stock under…

A: The percentage dividend yield is a financial proportion (dividend/price), indicating how often a…

Q: The VIX measures Select one: a.Realized volatility B. Current volatility C. Historical volatility D.…

A: The VIX stands for volatility index. Volatility index was the first benchmark which was created by…

Q: What does the capital asset pricing model (CAPM) calculate?   a. The expected rate of return on…

A: Capital Asset Pricing Model (CAPM) is a financial model used to determine expected return on an…

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: In part (b), why was the coupon payment added to the difference between the current and inital…

A: A coupon on a bond refers to the periodic interest payments that the bond issuer makes to the…

Q: The discount rate is the combination of what two types of discounting?   a. exponential and linear…

A: Discount rates are used for discounting the future cash flows. It helps in determining the time…

Q: 1. What are some fixed-income portfolio benchmarks available and why are they used?

A: Market-capitalization-weighted indices like Citigroup World Government Bond Index and Barclays…

Q: What security provides a good estimate of the long-term nominalrisk-free rate?

A: Risk-free Rate is the estimation of the rate that is earned on the securities or the investments…

Q: Assuming an inflationary economy, the future value interest factor is O always greater than 1.0. O…

A: Time Value of Money states that a dollar earned today is more valuable than any time in the future,…

Q: What does HPR stand for? O a. Holding Period Return O b. House Price Return O C. Holding Power…

A: Abbreviation is a shorter form of words or phrase. The shorter form of word is used instead of whole…

Q: True or false  When the net present value is negative, the present value index will be greater than…

A: Net present value: It is the technique used for analyzing investment in long term capital projects.…

Q: Assume that the variables I, N, and PV represent the interest rate, investment or deposit period,…

A: Compound interest formula: Future value = Present value *(1+rate)^years. Answer: FV = PV x (1 + I)NN

Q: Define each of the following terms: c. Net present value (NPV) method; internal rate of return (IRR)…

A: Net present value (NPV) is the contrast between the present value of money inflows over some…

Q: Which of the following is not a variable in the basic present value equation? Multiple Choice…

A: Investors are holding securities for the purpose of gaining the returns. The return is calculated…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.