Two assets have no correlation (correlation coefficient is zero) Combining these assets will eliminate all the risk. Combining these assets will have no effect on total risk. Combining these assets will increase total risk. Combining these assets will reduce total risk. Combining these assets may either raise or lower total risk.

Q: The empirical SML is too flat relative to what CAPM predicts. Researchers have focused on which two…

A: The empirical Security Market Line (SML) is a representation of the relationship between systematic…

Q: For what reason might a traditional NPV (net present value) analysis not be an appropriate means for…

A: Flexible manufacturing systems are a gathering of numerically worked machines associated with a…

Q: The best investment ____________________. Select one or more: a. maximizes reward b. maximizes…

A: The best investment depends on an individual's investment goals, risk tolerance, and financial…

Q: I don't know how I would come up with all the other answers? It only lets me know the asset minus…

A: Part 1a: Workings: Annual straight-line depreciation expense=Cost of asset-Estimated residual…

Q: Capital Asset Pricing Model is based on certain assumptions, which have been criticized after…

A: Asset pricing is a linear function of the beta value of market return: When the market returns…

Q: Which is least likely?  A. For the risk-seeking manager, no change in return would be required for…

A: Risk and return both are related to each other and depending upon the nature of managers or…

Q: Discuss how diversification reduces firm specific risk.

A: Diversification is investing money in many investments rather than a single investment. In…

Q: Which of the following statements is false? (You may select more than one answer.)a. The total-cost…

A: Capital budgeting refers to the process by which long-term investment proposals are evaluated based…

Q: One way to offset a higher probability of default would be to have high quality collateral thus…

A: Default refers to failure of an obligation that is generally related to repayment of a loan or funds…

Q: Risk sharing is also called... Select one: asset discounting All the answers are correct liability…

A: Risk sharing is one of important concepts in insurance where there is sharing of risk is involved.

Q: Select all that are true. The risk-return tradeoff is generally worse for individual assets than for…

A: Risk and return are fundamental concepts in finance and investing, especially in the context of…

Q: Which of the following is NOT true? You might be better off using elimination approach for this…

A: Several statements have been provided about the risk neutral valuation methodologies and their…

Q: Although we can determine the optimal bid and the expected profit from that bid in a bidding…

A: To determine the probability of winning in a bidding simulation, one must examine several factors…

Q: What are the three factors that the expected return on any risky asset is composed of?

A: Following are the three factors that the expected return on any risky asset is composed of:…

Q: A sound risk mitigation plan improves the DCF, as it lowers the risk premium in the discount factor.

A: Discounted cashflow:Discounted Cash Flow (DCF) analysis is a valuation method that calculates the…

Q: Explain

A: This theory, developed by Daniel Kahneman and Amos Tversky, suggests that people value gains and…

Q: Describe how investing in more than one asset can reduce risk through diversification.

A: Investing in more than one asset is a widely recognized method of reducing risk through…

Q: valuate three commonly used approaches to quantifying financial risks. Not satisfied with the first…

A: Risk management is the process of assessing risk and based upon the assessment, develop strategies…

Q: "If a security plots below the security market line, it is: " O ignoring all of the security's…

A: Security market line : Security market line represents the beta and expected return of a security on…

Q: When discussing a mix of risky assets please briefly explain the following concepts, making sure…

A: “Since you have posted a question with multiple sub-parts, we will solve the first three subparts…

Q: A portfolio comprised of two perfectly negatively correlated assets will always offer zero risk.…

A: Portfolio refers to a combination or collection of financial instruments or securities being stocks,…

Q: Diversification is not at all effective when security returns are __________. a. High b. Negatively…

A: Diversification is a method that mixes a wide variety of investments within a portfolio. The main…

Q: According to the Capital Asset Pricing Model, higher investment risk, however it is measured,…

A: The CAPM model is being used for finding the required rates of returns of the security for given…

Q: Do you believe on the principle-higher risk provides higher return? Can we achieve high return with…

A: Return is the reward which an investor will get by investing money in return and risk is the chance…

Q: True or False Investment bankers and other valuation professionals often utilize relative valuation…

A: Long term investments are the investment or assets that are beneficial for the firm for a number of…

Q: (T/F) The covariance between two assets ranges between -1.0 and 1.0. (T/F) If two risk) then their…

A: Covariance in finance is a statistical metric used to quantify the degree to which the returns of…

Q: then these assets vary in

A: The constant growth model is a method for valuing the share price of a stock. It calculates the…

Q: Another name for systematic risk is: Unique risk None of these are correct Diversifiable risk…

A: Systematic risks are related to risk of overall market risk and these are related to whole market…

Q: the assets' risk is the asset returns a

A: Step 1   Covariance is a statistical measure of how two assets move concerning each other. It…

Q: Someone who is risk neutral A. does not care about an asset's risk B. places a value on an asset…

A: The term "risk neutral" refers to an individual's mindset when considering investment possibilities.…

Q: Which of the following types of factoring is riskier for the buyer of the invoice? Recourse…

A: Invoice factoring is a financial transaction in which a business sells its accounts receivable…

Q: Options can be risky because it's a leveraged strategy.   True or False

A: Option are very good way to hedge the market and earn unlimited profit on that.

Q: Please explain why this statement is (False).  If a security's realized return is negative, it must…

A: The realized return of the security is the return that the security has provided in the past. The…

Q: The Fama-French 3-factor model is a multi-factor models that includes two additional risk factors…

A: The Fama and French model takes into account three variables: the ratio of a company's book value to…

Q: Explain why diversification reduces unsystematic risk but not systematic risk.

A: Diversification is a strategy used in investing where a variety of assets or securities are combined…

Q: Is there any justification for an investor to invest in assets with a negative beta?

A: Beta is the measure of Risk associated with the investment.The Beta measure the Systematic risk .so…

Q: By choosing assets that do not exhibit a high positive covariance with each other, the systematic…

A: Systematic risk is the risk associated with the market and is inherited to all securities in the…

Q: The discount approach, reinvestment approach and combined approach were all incorrect.

A: Formula of MIRR: MIRR =  n - 1where n = number of yearsMIRR discounting approach : Discount approach…

Q: Increasing leverage lowers the firm’s risk position, yielding the risk-return trade-off. True or…

A: Risk return trade off: return increases as the risk increases

Q: What are some advantages of matching the maturities of claims against assets with the lives of…

A: Whenever something is going to give benefit in future, it is known as asset. The amount which is…

Q: How does the efficient frontier change if we add the risk free asset into the portfolio of risky…

A: The efficient frontier is a set of optimal portfolios that maximizes expected returns for a given…

Q: When using the binomial model, you can't make decisions about investment using only the risk-neutral…

A: Risk-neutral probabilities are used to try to find an asset's or financial instrument's objective…

Q: Define risk-free asset (in no more than 3 lines). [Hint: Focus on the features of the asset itself.]…

A: There are various options available for investment. Some of them provide high or good returns or…

Q: If the projected glass demand never materializes. what is the extent of financial risk?

A: The question is based on the concept of demand and financial risk in a long term financing decision.…