a. It is not possible to invest to the right of the optimal risky portfolio b. Borrow and invest in the optimal risky portfolio c. Lend money at the risk-free rate of return

Q: a market that is efficient, investors are only compensated for bearing Group of answer choices 1.…

A: If the market are efficient that means all investors have sufficient information and knowldege than…

Q: hich one of the following is not a property of a pure arbitrage portfolio? a. Zero investment. b.…

A: Arbitrage is buying and selling of securities in two different markets to take advantage of…

Q: 19. Investors in the secondary market seek A. Low returns on long-term investment B. High returns on…

A: A secondary market is a market in which buying and selling of securities take place. In this, those…

Q: Investors will pay a premium to invest in risky assets. OA. True OB. False

A: Risk premium is the extra return  that an investor receives for investing in risky assets.

Q: Which statement about portfolio diversification is true? a. Proper diversification can eliminate…

A: Portfolio diversification refers to that investment strategy in which investments are made in…

Q: Using a payback period rule tends to bias investors toward Select one: a. riskier investments. b.…

A: Payback period: This method is used to calculate how many years a project will take to recover its…

Q: An abnormal return occurs:   Only when the actual return is lower than the expected return. Only…

A: A market is said to be efficient, if intrinsic Value of the Security is equal to Market price of the…

Q: An estimation by marginal investor, a higher expected return is earned on A. more risky securities…

A: An estimation by marginal investor , a higher expected return is earned on more risky securities.

Q: Which of the following is false about diversification? Select one or more: a. diversification only…

A: Introduction: Diversification is a risk management strategy. A diversified portfolio have a mix of…

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: 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: Unsystematic risk is * a.the risk associated with movements in securities prices B.higher when…

A: Risk is referred as uncertainty or loss. Financial risk is referred as the variability of actual…

Q: Which of the following is NOT true? In risk-neutral valuation the risk-free rate is used to discount…

A: Risk-neutral valuation produces a valuation that is correct in all situations not just those where…

Q: The maln rule In Investing Is: Select one: O a. don't invest unless the percelved risk is high…

A: Investor should consider various aspects before investing in any security or portfolio. Some of the…

Q: Which of the following is a TRUE statement? ○ The separation theorem states that the investment…

A: The statement which is true is (d) The new(or super) efficient frontier represents the portfolios…

Q: Which of the following is correct about the security market line (SML)? Investment projects that…

A: Security market line is the graphical representation of the values of stock against the risk…

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: The Arbitrage Pricing Theorem states that: a)If arbitrage opportunities do not exist then the…

A: Arbitrage pricing theorem or APT states that, Market returns are not perfectly efficient because of…

Q: Profitable projects are difficult to find.    a. Efficient capital markets b. The curse of…

A: Profitable project are difficult to find just because of severe competition world wise, because in…

Q: According to the Capital Asset Pricing Model, higher investment risk, however it is measured,…

A: The CAPM model is being used for finding the required rates of returns of the security for given…

Q: nvestors choose deri tives

A: derivatives are financial instruments whose value is derived from an underlying asset such as bonds…

Q: Under Capital Market Theory, the relevant risk to consider with any security is: (a) Its correlation…

A: Under the Capital Asset Pricing Model (CAPM):Required rate of return = Risk-free rate + (Market…

Q: What happens to the price and return of a security when investors recognize it as undervalued?…

A: Undervalued-If a security is selling in the market at a price below its true intrinsic value, then…

Q: The CAPM states that expected returns depend on an asset’s loading on market risk.

A: CAPM stands for capital asset pricing model. This model was developed by William. F. Sharpe. As per…

Q: “Even in an efficient market, it is still valid to seek out a ‘favourable’ rate of return from an…

A: An efficient market is one in which all information provided by the company with respect to their…

Q: Let rf be the risk free rate of interest. E[r e ] be the expected return of some risky asset.…

A: CAPM: CAPM is also called as Capital assets pricing model. Factors affecting CAPM return are risk…

Q: The combination of the efficient set of portfolios with a riskless lending and borrowing rate…

A: Solution Riskless asset is an asset that does not have any possibility of losses and the returns can…

Q: Which of the following best describes interest rate risk? The risk that credit ratings will change,…

A: The effect of interest rates refers to the impact that changes in the cost of borrowing money have…

Q: Choose option a,b,c,d,e for the following: Question 6 - A higher financial risk: a. Arises when…

A: Financial risk is concerned with the company's ability to generate sufficient cashflows.

Q: Investors do not get compensated for holding on to diversifiable risk. True False

A: Risk which are particularly to some companies and can be eliminated or reduced by investing in other…

Q: Speculation tends to have a high risk and high rate of return compared to investment Select one: O…

A: The main target in both the cases are making profit, however there are major differences between the…

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: “Even in an efficient market, it is still valid to seek out a ‘favourable’ rate of return from an…

A: Efficient Market Theory: Equities' pricing should represent all available information, according to…

Q: Money market does not have any role in the development of capital market

A: Money market is a market which deals in short term securities like treasury bills, bills of…

Q: Derivatives are used in risk management because they _____. a. diversify risks b. hedge risks c.…

A: In the world of Finance, risk can be classified into various types, such as :- Credit risk - It is…

Q: 37. If the semi-strong form of efficient market hypothesis does not fully hold, then active…

A: A semi strong form of efficiency market theory assumes that the current price has already…

Q: Define risk-free asset (in no more than 3 lines). [Hint: Focus on the features of the asset itself.]…

A: There are various options available for investment. Some of them provide high or good returns or…

Q: Listen An example of the no-arbitrage principle holding would be when all risk-free investments…

A: In a scenario where the no-arbitrage principle holds, risk-free investments should offer investors…

Q: According to the Capital Asset Pricing Model (CAPM), an asset with negative beta:   a. Cannot…

A: Capital Asset Pricing Model (CAPM): CAPM is the method of calculating the expected return on…