There are three explanations for the shape of the yield curve i.e. Unbiased expectations theory, Liquidity theory, and Market segmentation theory. Please Discuss each one and compare them.

Q: Discuss the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Model (APM) of Roll and…

A: Two pricing models namely CAPM and APM have to be discussed and differentiated.

Q: In the context of the Capital Asset Pricing Model (CAPM), the relevant measure of risk is A.…

A: As per CAPM, Expected Return = Risk free Rate + Beta * Market Risk Premium

Q: Describe the Market-Value Analysis?

A: Market Value is a solid indicator of investor or shareholder capital. All things considered, what…

Q: The following methods are used to measure market risk in the industry, except   A Regression…

A: Market risk refers to the measurement of uncertainty in the future outcomes underlying the…

Q: Present and Explain the theories of the Yield Curve?

A: The yield curve is a curve that shows the relationship between the interest rates and the different…

Q: This is a generalized framework for analyzing the relationship between risk and return: a. capital…

A: Risk refers to the uncertainty related to the investment within the future. Risk arises within the…

Q: Under which of the following term structure theories is market supply and demand the main cause of…

A: B. Segmented markets

Q: Explain the relationship between JENSEN's alpha and the security marketline of the Capital asset…

A: Jansen alpha indicates that how much risk adjusted returns by portfolio has been achieved by above…

Q: State the efficient market hypothesis. Describe its relevance for the analysis of financial markets.…

A: The Efficient Market Hypothesis (EMH) is a theory that suggests that financial markets are efficient…

Q: Fully discuss the Arbitrage Pricing Model. Show formula and give examples.

A: There are multiple methods that estimate the stock's required return. The capital asset pricing…

Q: Define the following terms, using graphs or equations to illustrate youranswers wherever feasible:…

A: c) The model indicating the relation of the market risk and the required stock returns is known as…

Q: Give some examples of the market-value ratios?

A: Market value ratios may include various types of ratios which indicate the value of company’s share.…

Q: Explain a flat yield curve using the segmented market theory.

A: Mаrket  segmentаtiоn  theоry  is  а  theоry  thаt  lоng  аnd  shоrt-term  interest  rаtes  аre  nоt…

Q: The two main approaches of equity analysis are: a. The discounted cash flow models and the absolute…

A: Equity analysis is carried out to value a firm. The two main approaches to value equity are given…

Q: Write short notes on the following:                     A. Market Segmentation Theory. B. Liquidity…

A: Market segmentation theory talks about the interest rate of varied maturity of different securities.…

Q: Which of the following theories can be assessed using data that exists at one specific point in…

A: Purchasing power parity: Purchasing power parity (PPP) is a concept which means that exchange rates…

Q: Critically discuss the application of EWMA, GARCH and asymmetric GARCH models to volatility…

A: Volatility should be forecastable using a volatility model. Almost all financial applications of…

Q: Give some examples of market value analysis?

A: Market value is a strong shareholder richness measuring stick. And besides, what depends is what the…

Q: Discuss the key assumptions of Arbitrage Pricing Theory (APT) model and the implications of these…

A: Solution- APT(Arbitrage Pricing Theory) is a multi-factor technical model supported the link between…

Q: What is the financial meaning of each parameters and variables of the Arbitrage Pricing Theory model

A: The question is based on the concept of Arbitrage Pricing Theory mode (APT). APT is consider  a…

Q: Use the ‘Liquidity Premium Theory’ to explain the shape of the yield curve.

A: Liquidity Premium Theory states that investors will require a higher rate of return(interest rate or…

Q: Explain an upward sloping yield curve using the pure expectation theory.

A: Pure expectation theory: Pure expectation theory states that expected future spot rates will be…

Q: can you draw a profit diagram of the portfolio above and state any assumptions that must be made.…

A: A portfolio includes long and short positions in call options on the same underlying with same…

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.