In efficient markets, the rate of return on a stock should be: A. always greater than the risk-free rate B. Less than zero C. Related to the systemic risk of the stock D. Zero; no stock should earn a positive return

Q: 7. If the point representing a stock's return and risk is above the security market, then_ B. the…

A: The stock has a higher return and higher risk compared to the average return and risk of the…

Q: hich one of the following is not a property of a pure arbitrage portfolio? a. Zero investment. b.…

A: Arbitrage is buying and selling of securities in two different markets to take advantage of…

Q: What is called the called the return on a stock beyond what would be predicted from market movements…

A: Returns can be of various types

Q: In theory, only systematic risk matters for the required return of a stock. Why does non-systematic…

A: Systematic risk refers to those which impacts the whole market rather than on particular stock…

Q: Is it reasonable to ignore IDIOSYNCRATIC RISK and care only about MARKET (SYSTEMIC) risk? What about…

A: Definitions  Idiosyncratic risk : In simple words, idiosyncratic risk can be understood as the risk…

Q: he best answer with respect to a stock's "alpha"? (In a CAPM world) Group of answer choices The…

A: Alpha of the stock or portfolio is risk adjusted performance given by the portfolio and how much…

Q: Why would investors looking to have a diversified stock portfolio view a negative covariance in…

A: The correct option is:A negative covariance means the stocks would not behave the same way, which…

Q: Fill in the blanks: Stock returns can be explained by the stock's and the stock's A. beta; market…

A: stock return cam be calculated using Capital asset pricing model or dividend discount model.

Q: Assume that CAPM does not hold and securities may earn abnormal returns. Suppose security A has a…

A: CAPM: It is a model that shows the relationship between the systematic risk & expected return of…

Q: 1. The diversifiable risk of a portfolio: a. Is correlated with systematic risk. b. Can be made…

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

Q: Strong form efficient market hypothesis states that stock prices reflects all the information in a…

A: Efficient market hypothesis has three versions - weak form, strong form and the semi-strong form.

Q: tock price volatility makes stock options less valuable because of risk aversion O True O False

A: Stock option can be bought with very little premium to be paid.

Q: According to the efficient market hypothesis:a. High-beta stocks are consistently overpriced.b.…

A: Efficient market hypothesis: The efficient market hypothesis is a kind of hypothesis in which the…

Q: If the assumptions underlying the CAPM hold, then an implication from the model is that: A)…

A: The CAPM shows the relationship between the Systematic risk and the return expected by the…

Q: The so-called ``flight to quality'', which happens during a financial crisis, causes the risk…

A: The objective of the question is to understand the impact of a 'flight to quality' on the risk…

Q: In the context of CAPM, a risky asset with negative beta (beta<0) will have a positive expected…

A: CAPM describes the relationship between risk of security and expected return. CAPM is the expected…

Q: Adding more stocks to his/her portfolio will result into which one of the following? specific risk…

A:

Q: Give typing answer with explanation and conclusion  Which of the following statements is CORRECT?…

A: Diversified portfolio An investor's total risk profile is decreased by a diversified portfolio,…

Q: The CAPM states that expected returns depend on an asset’s loading on market risk.

A: CAPM stands for capital asset pricing model. This model was developed by William. F. Sharpe. As per…

Q: An increase in investor risk aversion would be expected to: Increase the Risk-Free Rate while…

A: We have to assess the impact of the increase in risk aversion on risk free rate and expected return…

Q: if asset A has lower volatility than asset B, then it contributes less to the overall volatility…

A: Volatility is change in expected rate of assets from the mean return and it shows the risk involved…

Q: If the intrinsic value of a stock is greater than its market value, which of the following is a…

A: Fair value of a stock is also known as its intrinsic value. Intrinsic value of a stock is the…

Q: How can investors make decisions about financial instruments that involve future payoffs? a) There…

A: Future payoff refers to the expected future return on financial instruments. Every financial…

Q: Which of the following statements is CORRECT? a. If an investor buys enough stocks, he or she can,…

A: The objective of the question is to identify the correct statement among the given options related…

Q: Which of the following statements is CORRECT? Multiple Choice Company-specific risk can be…

A: The unsystematic risk is the company specific risk, the systematic risk is the vulnerability related…

Q: 7. Which of the following statements is FALSE? A) The market portfolio is the efficient portfolio.…

A: Market portfolio refers to the group of investments that involves every type of asset available…

Q: Which of the followings are required assumptions for the CAPM to hold?   a   Investors can borrow…

A: Option a is correct. Investors can borrow at the risk free rate. Option b is correct. The CAPM…

Q: In a binomial tree created to value an option on a stock, what is the expected return on the option?…

A: The binomial tree model is a commonly used method in finance for valuing options and other financial…

Q: Market risk ________.   a. is equal to the rate of return generated by a risk-free asset b.…

A: By simple diversification the total risk can be reduced but can not be totally eliminated. The…

Q: A reduction in the willingness of investors to take on risk would have what effect on the Security…

A: Security market line is a visual representation of the capital asset pricing model (CAPM). It is…

Q: Hedging a portfolio   a. Will generate above average returns when options expire   b. none of…

A: Hedging a portfolio means using financial instruments and financial market strategies so that…