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The difference between the market rate and the risk-free rate is the Blank______.
premium on risk-free rate
risk-free return
market risk premium
market risk return
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- 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 SelectionINTEREST RATE RISK In the context of the repricing gap model, what is the spread effect? How does it affect the change in net interest income?The value-at-risk is the most commonly used measure of market risk. a. Write a Short History of Value-at-Risk b. Explain the methods used to determine Value-at-Risk
- When would I use the arithmetic average risk premium (as opposed to the geometric risk premium)?The Capital Asset Pricing Model (CAPM) asserts that an asset’s expected return is equal to the risk-free rate plus a risk premium for: a. Volatility b. Systematic risk c. Non-systematic risk d. Diversification e. Marginal utility of consumptionWhich one of the following statements is correct? Group of answer choices The lower the average return, the greater the risk premium. The greater the volatility of returns, the greater the risk premium. The lower the volatility of returns, the greater the risk premium. The risk premium is not affected by the volatility of returns. The risk premium is unrelated to the average rate of return.
- 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.Which of the following is the correct equation of the capital asset pricing model (CAPM)? (E(Ri) denotes the expected return on a security, Rf denotes the risk-free rate, [E(RM) − Rf] denotes the market risk premium, and βi denotes the amount of systematic risk present in the security.) Multiple choice question. E(Ri) = Rf + [E(RM) – Rf] × βi E(Ri) = Rf – [E(RM) + Rf] × βi E(Ri) = Rf – [E(RM) – Rf] × βi E(Ri) = Rf + [Rf− E(RM)] × βiWrite a general expression for the yield on anydebt security (rd) and define these terms: real riskfree rate of interest (r*), inflation premium (IP),default risk premium (DRP), liquidity premium (LP),and maturity risk premium (MRP).
- If a security is underpriced (i.e., intrinsic value > price), then what is the relationship between its market capitalization rate and its expected rate of return?An efficient capital market is best defined as a market in which security prices reflect which one of the following? Multiple Choice A Current inflation B A risk premium C All available information D The historical arithmetic rate of return E The historical geometric rate of returnThe risk-adjusted discount rate has two components: compensation for bearing the risk associated uncertain payoffs and foregone interest. True False
