In the context of CAPM, a risky asset with negative beta (beta<0) will have a positive expected excess return. (Assuming investors are risk-averse.) True or False?
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A: FALSE
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A:
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A: Total risk = systematic risk + unsystematic risk
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- You are a risk-averse investor. Would you therefore invest in financial assets that have a high or a low beta (b) coefficient? How high or low the beta coefficient should be in this case?Beta and CAPM Is it possible that a risky asset could have a beta of zero? Explain. Based on the CAPM, what is the expected return on such an asset? Is it possible that a risky asset could have a negative beta? What does the CAPM predict about the expected return on such an asset? Can you give an explanation for your answer?Think about whether a risk-free asset should earn a risk-premium beyond the risk-free rate. Thinking about that should give you an idea of the beta for a risk-free asset. Or, look again at the CAPM equation: E(Ri)=Rf+βi[E(RM)−Rf] Given this equation, what beta sets the E(R) of the risk free asset equal to the risk-free rate? A) zero B) 0.5 C) 1.0 D) its random
- An investment with a high return is likely to be high riskA. TrueB. FalseWhat is the expected return of a zero-beta security?a. Market rate of return.b. Zero rate of return.c. Negative rate of return.d. Risk-free rate of return.Prove rigourously, "Constant relative risk aversion (CRRA) implies decreasing absolute risk aversion (DARA), but the converse is not necessarily true."
- Market potential is an example of an economic risk measure. O True O FalseA negative alpha would mean that a the portfolio have earned enough return given the amount of risk he was taking a. maybe b. it depends c. false d. trueUnder prospect theory, the shape of the utility function implies that investors are____________. A) Always risk averse B) Risk seeking when it comes to losses C) Always risk seeking
- 3. The beta for the risk-free investment is closest to: A) 1. B) 0. C) Unable to answer this question without knowing the risk-free rate. D) Unable to answer this question without knowing the market's volatility.A portfolio is efficient if no other asset or portfolios offer higher expected return with the same (or lower) risk or lower risk with the same (or higher) expected return. Select one: True FalseThe probability distribution of a less risky return is more peaked than that ofa riskier return. What shape would the probability distribution have for (a)completely certain returns and (b) completely uncertain returns?