At a minimum, which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset? 1. I. Asset's standard deviation 2. II. Asset's beta 3. III. Risk-free rate of return 4. IV. Market risk premium I, III, and IV only I, II, III, and IV I and III only OII and IV only III and IV only

At a minimum, which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset? 1. I. Asset's standard deviation 2. II. Asset's beta 3. III. Risk-free rate of return 4. IV. Market risk premium I, III, and IV only I, II, III, and IV I and III only OII and IV only III and IV only

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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Theta measures an option's: Multiple Choice O O intrinsic value. volatility. rate of time decay. sensitivity to changes in the value of the underlying asset. sensitivity to changes in the risk-free rate.
Please answer both QUESTION 7 According to the capital asset pricing model (CAPM), fairly priced securities should have A. A non-zero alpha. в.A fair return based on the level of systematic risk. C. A fair return based on the level of unsystematic risk. D.A beta of 1. QUESTION 8 Diversification can increase fair return. True False
Explain the following three variables which influence the overall rate of return on alternative investments: The real risk-free rate of return The nominal risk-free rate of return The risk premium on the investment
18. If one were to plot the expected returns of assets (y axis) against the systematic risk (x-axis) and construct a frontier of investments, then the indifference curves of a risk-neutral investor would: Select one or more: a. Would be straight horizontal lines b. Would be undefined and impossible to plot on such a diagram c. Would increase in utility as you go up along the y-axis d. Would be straight vertical lines e. Coincide over top the efficient frontier boundary at all points f. Would increase in utility as you go left along the x-axis
Which of the statements about the Arbitrage Pricing Theory MUST BE TRUE. I. There is only one systematic risk, the market risk. II. The market risk factor must be one of many systematic risk factors. III. Individual assets may have a positive or negative alpha A. I only B. II only C. III only D. None of the above
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
Define risk-free asset (in no more than 3 lines). [Hint: Focus on the features of the asset itself.] Is the following statement true or false. Briefly explain your answer. "There can not be a universally risk-free asset for all investors." [Hint: Think about investor's investment horizon vs. the asset's time to maturity, inflation, etc.]
Which one of the following is a property of a pure arbitrage portfolio?a. Negative investment.b. Zero return.c. Positive systematic risk.d. Zero total risk.
Which of the following inputs is not required to price option using the Black‐Scholes model? a) the asset price b) the time to maturity c) the asset’s risk premium d) the risk‐free rate of interest
Give typing answer with explanation and conclusion Please could you anwser it with true or false : Q1)Risk-neutral evaluation assumes that the expected return on the underlying asset is the risk-free rate and discounts at the risk-free rate.
Which of the following is included inthe risk-free rate? O A. the default premium O B. the expected inflation premium O C. the liquidity premium O D. the maturity premium O E. All of the above are included in the risk-free rate. Reset Selection
Question 5 Choose the correct answer for the following: (1) Which is the best measure of risk for choosing an asset which is to be held in isolation? (2) Which is the best measure for choosing an asset to be held as part of a diversified portfolio? O Variance; correlation coefficient. O Standard deviation; correlation coefficient. O Beta; variance. O Coefficient of variation; beta. O Beta; beta.

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