You would like to invest in a portfolio to the right of the optimal risky portfolio, on the capital allocation line. What do you need to do to achieve this?Select one:O a.It is not possible to invest to the right of the optimal risky portfolioO b. Borrow and invest in the optimal risky portfolioO c.Lend money at the risk-free rate of returnO d. Short sell the optimal risky portfolio

The capital market line is the capital allocation line formed when the risky asset is a market…

Answered: a. It is not possible to invest to the…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Please explain it why choosing option correct and wrong # Which of the following best describes interest rate risk? The risk that credit ratings will change, affecting the value of assets and liabilities The risk that banks will not be able to meet their liquidity requirements None of the above The risk that interest rates will rise or fall, affecting the value of assets and liabilities
The increased change in value that occurs because longer maturity investments are affected more by interest rate changes than are shorter maturity investments is called Blank______ risk. Multiple choice question. maturity interest rate reinvestment rate default
Choose option a,b,c,d,e for the following: Question 6 - A higher financial risk: a. Arises when the debt – equity ratio is reduced. b. Can avert financial distress. c. Will cause the shareholders to expect lesser return. d. Indicates an inefficient use of fixed cost assets. e. Indicates an inefficient use of fixed cost funds.
Suppose the financial institution is trying to minimise their exposure to changes in the underlying asset price. Explain why the financial institution may want to keep their portfolio both Delta and Gamma neutral
Hedging a portfolio a. Will generate above average returns when options expire b. none of the answers given c. Will generate below average returns when options expire without being used d. Will generate riskless payoffs when options expire
Financial advisors generally recommend that their clients allocate more to higher risk–return asset classes (like equities) if their investment horizons are long. Is this advice consistent with the basic M-V model? Does adding a shortfall constraint to the M-V model make a difference? If so, how? If not, why not? Assuming investment opportunities change over time, what type of asset return behavior would justify this advice within the M-V framework?
Speculation tends to have a high risk and high rate of return compared to investment Select one: O True O False 1
Explain why diversifying your portfolio does not always eliminate risk. What are the effects of investing in -- 1. uncorrelated assets; 2. positively correlated assets; 3. negatively correlated assets-- when it comes to risk and diversification
Is it true that the the wider the risk premium, the lower the price of a expected future cash flow?
Read the following statements w.r.t. investment appraisal techniques and identify the most appropriate option (i) The rate of return method does not take care of timings of returns. (ii) Simple Payback method does not consider time value of money. Select one: a. Both statements are correct O b. First statement alone is correct c. Second statement alone is correct d. Both statements are wrong
Derivatives are used in risk management because they _____.a. diversify risksb. hedge risksc. avoid risksd. none of the above
Does a risky investment always equal a big payoff and vice versa?

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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