If the return on U.S. Treasury bills is 7.02%, the risk premium is 2.32%, and the inflation rate is 4.16%, then the real rate of return is ____.   a. 2.86%   b. 7.02%   c. 4.70%   d. 6.48%

Q: Classify the following event as mostly systematic, mostly unsystematic: "Short-term interest rates…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Urgent: What is the market risk exposure from the following position, expressed as P/L for a 1bp…

A: DVO1 is the change in the value of the Bond per unit change in 0ne basis point change in yield  DV01…

Q: The future worth equivalent in year 12 of the cash flows with variable interest rates shown below is…

A: Interest Rate in first 2 years = 3% per year Interest Rate in year 3-9 = 6% per year Interest Rate…

Q: Maturity Risk Premiums: Assume that the real risk free rate, r*, is 3 per cent ane tion is expected…

A: Maturity risk premium of 2 year treasury note =Treasury yield - Risk free rate- Inflation rate of…

Q: (a) What is meant by the term correlation? What is meant by the term diversification? (b) Suppose…

A: Corrleation for second part is 0.96 To Find: Expected return  Standard deviation

Q: Time CF 0 1 2 3 4 8000 -17000 8000 -6500 9000 1A. Morty Inc. is evaluating the following project…

A:

Q: Which of the following statements can explain the shape of the hypothetical Australian yield curve…

A: A yield, especially on a bond, shows the return that one gets from investing in the bond. Yield…

Q: If we have an inflation ratio (f) of 5.0% and a market interest (i) of 1.0%, how much is the…

A: A market interest rate is also called market nominal rate. This rate does not take account of…

Q: What is the beta of a U.S. Treasury bill? O 1.0 negative 1.0 O Unknown

A: US treasury bills are issued by the US government. They are issued at low interest rate. This bill…

Q: Question 3: An investment yields expected future cash flows of $21.00, $34.00, $40.00, $33.00, and…

A: The following computations are done to evaluate the investment as per the time period.

Q: Suppose that the spot exchange rate is $1.5/£, that the beta on the £ forward market return (i.e.,…

A: The capital asset pricing model is used extensively for the valuation of stock and calculating the…

Q: Given a discount rate of 9 per cent, the present value of the security is closest to: A. $487. В.…

A: The given problem can be solved using NPV function in excel. NPV function computes present value of…

Q: Effective interest amortization method uses which of the following rates to determine interest…

A: Under the effective interest method, the interest is calculated as yield to maturity multiplied by…

Q: 7 How much would an investor need to receive in nominal return if he desires a real return of 4% and…

A: Nominal rate of return is the rate that is calculated after taking into account the effect of…

Q: Hi. How do you draw the Mundell-Fleming model with a fixed exchange rate and a restrictive monetary…

A: The objective of the question is to understand how to draw the Mundell-Fleming model under a fixed…

Q: Calculate the nominal rate of interest given a real rate of 10% and an inflation rate of 6%. A.…

A: Given: Real rate = 10% Inflation rate = 6%

Q: Finance Use the data in the following table to calculate a. The effective duration when rates…

A: Data given: 4% Coupon 10  year T-note YTM Price 4.50% 97.78 4.20% 99.11 4.00% 100.00…

Q: 2 What is the basis point spread (in Bips) between: + Years to Maturity Treasury Yield AA-Rated Bond…

A: The difference on the yield on the two bonds is spread and spread is expressed in the basis points…

Q: B. How long wil the given principal P take to reach the given maturity value A at the given simple…

A:

Q: Required information As indicated, some of the cash flows are expressed in future (then-current)…

A: The present worth of estimated cash flows is a method used to calculate the present value of a…

Q: (i) Write down an equation for the three main components of the nominal long term interest rate on a…

A: With real interest rate (R) and the expected inflation rate (h), the nominal rate (i) is expressed…

Q: TABLE 1 Items Annual Rate Real Risk-free Rate 1.90% Long-Term Treasury Bonds 5.75% Long-Term…

A: Short term treasury bills are considered risk free in nature. It will be free from any kind of…

Q: According to research, what percentage of stocks are affected by exchange rate risks? a. 1 to 10…

A: Assigning a specific percentage to the stocks affected by exchange rate risk without direct access…

Q: What is the return (%) that can be made from correctly exploiting the mispricing given these three…

A: The exploitation of mispricing means taking advantage of profitable opportunities due to the…

Q: Danica Tribbiano believes expected inflation is 2.25% and the real rate of return is 2.75%. Based on…

A: Here, Inflation rate = 2.25% Real rate of return = 2.75% To Find: Risk-free rate of return =?

Q: 5. Suppose that the general inflation rate is 5% and the real interest rate is 3%. Find the market…

A: Fisher Equation:  It is the equation that  shows that relationship under the effect of inflation…

Q: Suppose the real rate is 8.5 percent and the inflation rate is 2.8 percent. What rate would you…

A: We will use the below formula to calculate the return on Treasury billReturn on Treasury bill =…

Q: 15. If the inflation rate is 20% and the nominal risk-free interest rate is 25% then the real…

A: As we know that the Nominal risk-free rate is inclusive of inflation Nominal Risk-free rate = 25%…

Q: Spot Rate 1 $-30.60 B 3Mth Forward Rate 1$ = 30.50 B US flation Rate 3% terest Rate 3% ΤΗ 2% 2%

A: According to International Fisher Effect (IFE), the future spot rate between Bhatt and US dollar is…

Q: (Click on the following icon in order to copy its contents into a spreadsheet.) Approximate Real…

A:

Q: There are two risky assets, and their volatilities are 8% (Asset 1) and 24% (Asset 2). Their return…

A: If two Assets (i.e Asset 1 and Asset 2) are perfectly negatively correlated i.e their return…

Q: absolute

A: Formula for mean absolute forecast error is: Predicted value - Realized value/Realized value…

Q: 2. Consider a Financial Institution with the following assets and liabilities. Asset A has a…

A: Given information: Assets Amount Liabilities Amount 2 year Asset A $50,000 3 year Liability A…

Q: Question 2: Given the interest rate determinants information below:   Scenario A Scenario B…

A: Interest rates depicts the cost of borrowings that a borrower has to bear in order to acquire funds…

Q: Given W=180 b=0.75 G=90 Tax=90 NX=-50 I=300-10r Central bank reserves are Gold=100 f.…

A: Given:w=180b=0.75g=90tax=90nx=-50i=300-10rCentral bank reserves : gold=100, f. currencies 200,…

Q: A 8 Fisher Equation: i= r+ n° You have $10,000 in a bond fund with an average yield of 6%. Expected…

A: Irving Fisher is the economists on whose the below mentioned equation is used to determine the…

Q: Sheet 5 Use Sheet 5 to complete the following Date GOOG Return NFLX Return Market Return Risk-Free…

A: Numbers that describe the data:  Numbers that describe the data are typically single numbers like…

Q: Consider the following daily net cash flows: Day NCF 1 $15,000 2 17,000 3 13,000 4 20,000 5 14,000…

A: The mean absolute deviation for the moving average forecast: The moving averages are used to…

Q: Given the cash flows in actual dollars provided in the following table, calculate the present worth…

A: A loan payment is a regularly scheduled payment made by a borrower to a lender in order to repay the…

Q: (Click on the following icon e in order to copy its contents into a spreadsheet.) Approximate True…

A: Approximate Real Rate = Nominal Rate - Inflation Rate True Real Rate = [ (1+Nominal rate) /…

Q: Question 2: Assume the existing one-year risk-free rate is 1.5%, the market risk premium is 2%, the…

A: The probability of repayment can be determined by using the following formula where PD is the…

Q: Show your solution 1. For each of the following Treasury Bills, calculate the discount basis yield…

A: Here, Formula of Discount Yield and Investment Yield is as follows: Discount Yield=Face Value-…

Q: You have an opportunity to purchase a piece of vacant land for $30,000 cash. If you plan to hold it…

A: Future value refers to the value of the amount to be received in lump sum in the future or in…

Q: Calculate the following: a. If the overnight fed funds rate is quoted as 2.25 percent, what is the…

A: ANSWERS:- a. Bond equivalent rate=2.287% b. Yield on the repo =3.48% c. interest = Rs 1527.77 d.…

Q: Finance What is the OAS on the MBS with the following characteristics: 1. Coupon rate: 9.5% 2.…

A: Option-Adjusted Spread (OAS) is a financial metric used to measure the additional yield an investor…

Q: 5. Assume that the price of a price of $40 is $2.75. If the underlying stock price is $38, the…

A: Options gives the opportunity to buy or sell stocks on expiration by paying small premium but there…

Q: What is the real interest rate if the nominal interest rate is 3% and inflation is 2%?

A: Inflation rate will be the part of real interest rate. Inflation rate means increase in prices which…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.