according to capm the expected return on equity includes a reward for: a. market risk and specific risk b. Specific risk only c. Time value of money and market risk  d. Diversification and portfolio risk  e. Time value of money and specific risk

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: Assume that the risk-free rate increases, but the market risk premium remains constant. What impact…

A: Risk free rate is free from the risk. Every rate of return given is depends on the risk free rate.

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: What is the relationship between correlation and the risk of the portfolio's rate of return? i.…

A: Correlation represents the degree of relationship between the movement of prices of assets in a…

Q: Give a definition of a "return". Why do we need to incorporate risk into return (discount rate)?

A: Investment: An investment is when money is used now with the goal of increasing its value later. In…

Q: The goal of immunization is to A. make the effective duration of the portfolio zero В. generate a…

A: Portfolio immunization is a strategy that matches the duration of assets and liabilities to mitigate…

Q: The desired rate of return on an investment should reflect the degree of risk involved. A.   True…

A: Riskier investments may give higher returns to the investors as they provide favorable ratio of risk…

Q: p of answer choices Both theories assume that undiversifiable risk is priced. Both theories assume…

A: Step 1 APT aims to identify the market value of the collateral that may temporarily have a negative…

Q: Another name for the expected value of an investment would be: a. The mean value b. The risk-free…

A: The expected value (EV) is an anticipated value for investment at some point in the future. In…

Q: Discounting an investment’s cash flows using the internal rate of return will result in which of the…

A: Introduction: The internal rate of return (IRR) is a research and consulting metric used to assess…

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: Describe the capital asset pricing model and explain the role of beta as a risk measurement tool.

A: Answer

Q: According to the ,long-term interest rates are a function of expected short-term interest rates…

A: Essentially, the term structure of interest rates is the correlation between asset yields or…

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: Given the capital allocation line, an investor's optimal complete portfolio is the portfolio that A)…

A: Capital Allocation Line (or CAL) refers to that line in finance that shows risk and reward profile…

Q: The additional compensation that investors require to take on higher risk investments is the a.…

A: The risk associated with an investment refers to the probability of loss that an investor bears when…

Q: Value-at-risk (VaR) can be defined as: Group of answer choices A. The highest value of a portfolio…

A: Portfolio refers to basket of different financial assets in which investment is made by single…

Q: Under prospect theory, the shape of the utility function implies that investors are

A: Under prospect theory, the shape of the utility function implies that investors are: (A) Always risk…

Q: Duration is important in understanding a fixed income portfolio because A. it is used in the capital…

A: When the porfolio is designed by incorporating some of the securities which has fixed interest…

Q: risk premium: (a) The risk premium indicates the amount of compensation investors require for…

A: Market risk premium or the risk premium is the extra returns that is required by the invester for…

Q: What are the key differences between the Arbitrage Pricing Theory (APT) and the Capital Asset…

A: Portfolio management entails the planning, supervision, timing, rationalism, and conservatism…

Q: Sensitivity analysis, scenario analysis, and Monte Carlo simulations all help us determine: Initial…

A: In financial analysis, various tools are employed to assess and understand different aspects of…