Diversification is most effective when security returns are positively correlated high negatively correlated uncorrelated

Q: Using a wrong formula for CAPM is a __  (select one) a. Erronous model risk b. Market data…

A: Introduction : In simple word, the capital asset pricing model (CAPM) is the valuation model used to…

Q: A security with only diversifiable risk has an expected return that exceeds the riskfree rate of…

A: Unsystematic risk is another term for diversifiable risk. The risk that may be quantified and…

Q: Which of the following risks can be eliminated through diversification? a. Systematic risk b.…

A: Idiosyncratic risk is a risk for a particular investment or company. It is also called unsystematic…

Q: Portfolio which consists of perfectly positive correlated assets having no effect of A. negativity B…

A: A portfolio is built to accomplish a particular investment objective, whether or not or not it's…

Q: If a security is underpriced (i.e., intrinsic value > price), then what is the relationship…

A: Intrinsic value of a security is the fair value based on the assessment of its fundamentals and…

Q: Explain risk arbitrage

A: It is a venture system to benefit from the narrowing of a hole of the exchanging cost of an…

Q: A measure of how the returns of two risky assets move in relation to each other is the:

A: By calculating covariance we can identify in what direction the returns move for two securities.

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: We have seen that market timing has tremendous potential value. Would it therefore be wise to shift…

A: Securities selection is the process where financial securities are chosen and included in the…

Q: 5. Under what circumstances will the coefficient of variation of a security's returns and the…

A: The coefficient of variation (CV) and the standard deviation (SD) are both measures of risk in…

Q: where Ri is the excess return for security i and RM is the market's excess return. The risk-free…

A: Variance of Returns:The variance of returns refers to the measure of how much a set of investment…

Q: The market efficiency hypothesis claims that, as a rule, the market value and intrinsic value of a…

A: The market  efficiency hypothesis posits that security prices reflect all available information,…

Q: Using examples, explain how firms are affected by both systematic and firm-specific risk. What is…

A: There are two types of risk systemic risk and firm specific risk.

Q: Explain the difference between a linear risk and a nonlinear risk.

A: Linear risk is an enterprise's risk, based on the traditional economic system of "take-up-dispose."…

Q: What security provides a good estimate of the real risk-free rate?

A: A Treasury bill (T-Bill) is the short-term liability of US public debt supported for 1 year or…

Q: A "risk-premium" is the difference between ___________________________ . A) the variance of a…

A: Solution:- Capital Asset Pricing Model (CAPM) is the equity model to determine the expected rate of…

Q: The standard deviation measures the _____ of a security's returns over time.   Multiple Choice…

A: Return refers to the exceeding value above the invested value which available for investor over…

Q: Define operating leverage with examples and why it is potentially risky.?

A: Operating leverage is used to measure a company’s fixed costs as a percentage of its total costs. A…

Q: Which of the following statements about the mean-variance criterion is correct?   The mean return…

A: Analysis of amount of risk taken for a given asset's expected return with another asset's variance…

Q: With regard to dynamic risk strategies, MGRM was subject to: Group of answer choices B.…

A: Answer : D Both A&B

Q: Please explain why this statement is (False).  If a security's realized return is negative, it must…

A: The realized return of the security is the return that the security has provided in the past. The…

Q: Discuss the Beta of  as measure of systematic risk.

A: In finance systematic risk refers to that risk which is inherent to the entire market. As the risk…

Q: In the context of the Pastor-Stambaugh multifactor model (PSM), the relevant risk factors are the…

A: Risk factors in both the Pastor-Stambaugh and Fama-French models include: Market Risk (MKT): This…

Q: Explain Broader Diversification Reduces Risk?

A: The investment in different financial assets is known as the portfolio of an investor. The…

Q: )define market risk.        b)define delta-hedged position and describe delta hedging.…

A: Market risk is the potential for financial loss that arises from adverse movements in market prices,…

Q: According to modern portfolio theory, pair-wise covariance is more important to total portfolio risk…

A: According to modern portfolio theory, every investment's risk and return characteristics should not…

Q: Systematic risk is defined as: a risk that specifically affects an asset or small group of assets.…

A: Systematic risk refers to the uncontrollable risk produces by external factors that are not in the…

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

A: Diversification means the strategy of spreading investments across different assets, sectors or…

Q: Diversification True or false: The most important characteristic in determining the expected return…

A: A well-diversified portfolio is one which has assets with low correlation with each other. This way,…

Q: For which type of risk do you get rewarded with a higher expected return? a. Firm-specific risk b.…

A: Financially speaking, risk is the possibility that a result or investment won't provide the desired…