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The market risk premium is calculated as Blank______.
RM
RM − Rf
RM + Rf
β × (RM − Rf)
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- Rm-R is read as: O a. The return offered by the market over and above the risk-free rate O b. Market risk premium- Oc. Excess return on the market C. Od. All options are correctA change in the risk premium, E(Rm) - Rf, results in... Group of answer choices 1. A change in the vertical intercept of the Security Market Line (SML) 2. No change in the return/beta relationship. 3. A change in the horizontal intercept of the Security Market Line (SML) 4. A change in the slope of the Security Market Line (SML)Provide a descriptive formula for each of the following (e.g., Total risk =?+?): a. Total risk= b. Discount rate= c. Adjusted NPV=
- The difference between the market rate and the risk-free rate is the Blank______. Multiple choice question. premium on risk-free rate risk-free return market risk premium market risk returnThink 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 randomWhich 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)] × βi
- A change in the risk premium, E(Rm) - Rf, results in... a) A change in the vertical intercept of the Security Market Line (SML) b) No change in the return/beta relationship. c)A change in the horizontal intercept of the Security Market Line (SML) d)A change in the slope of the Security Market Line (SML)The CAPM states that the expected (required) return on an asset is : E(Ri)=Rf+βi[E(RM)−Rf] where the term in square brackets is the risk-premium earned by the market portfolio. Therefore, the beta of the market portfolio (βM) must be equal to __________ . A) zero B) 0.5 C) 1.0 D) an unknown estimateA risk-free asset by definition has a beta of zero. OA. True OB. False
- 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 SelectionWhen would I use the arithmetic average risk premium (as opposed to the geometric risk premium)?a)define market risk. b)define delta-hedged position and describe delta hedging. c)describe gamma hedging and vega hedging. d)define and explain value at risk (VAR). e)describe the analytical (variance-covariance) method of calculating VAR, and discuss its advantages and disadvantages.