What is a characteristic line? How is this line usedto estimate a stock’s beta coefficient? Write outand explain the formula that relates total risk,market risk, and diversifiable risk

Q: Discuss the rationale behind the cross-sectional impact of investor sentiment on stock returns.

A: The stock returns are the yield on shares and stocks. Returns of the stock are affected by different…

Q: Briefly explain what the Beta of a stock means. What values can it take and what do these imply?…

A: Beta is a measure of a stock's volatility in relation to the overall market. If a stock moves less…

Q: Explain what is the risk component of financial assets.

A: Risk can be described as the likelihood of an unexpected or negative outcome. Any act or activity…

Q: What’s the difference between a stock’s current market price and its intrinsic value?

A: Stock Current market price is the price at which the stock traded in the market.   Intrinsic value…

Q: Which of the following statements is true? Select one: Total risk = market risk + unique risk.…

A: systematic risk is beta

Q: Morningstar's Risk-Adjusted Rating most closely resembles which measure? The Treynor Index Jensen's…

A: Financial statements are statements which states the business activities performed by the company .…

Q: he best answer with respect to a stock's "alpha"? (In a CAPM world) Group of answer choices The…

A: Alpha of the stock or portfolio is risk adjusted performance given by the portfolio and how much…

Q: Year Stock A Stock B 2010 - 6% 25% 2011 17% 5% 2012 6% 4% 2013 - 9% - 2% 2014 4% - 4% 2015 13% 25%

A: A stock is a security that describes the percentage of ownership of a particular company held by an…

Q: Morningstar's Risk-Adjusted Rating most closely resembles which measure? The Treynor Index Jensen's…

A: Financial statements are statements which states the business activities performed by the company .…

Q: Differentiate between (a) stand-alone risk and(b) risk in a portfolio context

A: Investors can categorize the risks in two types. One is diversifiable risk and other one is…

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: Total risk can be divided into: standard deviation and variance. standard deviation and covariance.…

A: Risk is the probability of loss. It describes the chance that there will be a negative return or…

Q: How is risk defined and measured? How might the magnitude of the market risk premium impact…

A: In financial terms, the risk is referred to as the possibility that an outcome's actual gains will…

Q: Which of the following is/are an examples of unsystematic risk of a stock   O a Political risk…

A: Operating Risk

Q: It is the uncertainty of future returns

A: A return can be defined as the money made on money invested over some period of time. A return can…

Q: What is a stock’s volatility?

A: Stock Volatility:   Volatility is defined as a statistical measure of the dispersion of the returns…

Q: Describe how Investment Managers measure the non-systematic risk of their portfolio

A: Non-systematic risk refers to firm specific risk factors. This type of risk is usually eliminated or…

Q: Describe two conditions which will determine whether or not a stock is in equilibrium. Can either of…

A: Equilibrium refers to a state of rest or a situation where demand is equal to supply. At point of…

Q: “Value-weighted index could provide a better signal on the market condition to the investors as…

A: Value -weighted  index -Index return equals the weighted average  of the return of each component*…

Q: Describe the relation between Risk and Returns that was introduced by Harry Markowitz

A: Modern portfolio theory, or MPT, is referred to as the method for portfolio management for reducing…

Q: Describe each of the following methods for estimating the cost of equity: (a) the CAPM, (b) DCF,and…

A: a) CAPM The full form of CAPM is the Capital asset pricing model. It is used in determining the…

Q: How do you measure an investor's risk aversion?

A: The objective of this question is to understand how to measure an investor's risk aversion. Risk…

Q: Which statement is not true regarding the market portfolio? Group of answer choices a. It includes…

A: A diversified investment portfolio comprising all marketable assets is represented by the…

Q: The Capital Asset Pricing Model (CAPM) considers which type of risk in pricing the expected returns…

A: Capital Asset Pricing Model is used for pricing risky securities. It describes the risk and return…

Q: What is relationship between the market risk of a stock and it's expected return?

A: Expected return is directly related to the market risk . Market risk is represented by beta. Higher…

Q: A yield curve compares expected returns of stock and bonds to their maturities. Select one: True OR…

A: A yield curve is a graph that gives interest rates of bonds over a range of maturities. The bond's…

Q: Suggest what is the best financial instrument to offset market risk exposure and from market…

A: The question is based on the concept of hedging the market risk and volatility by use of a proper…

Q: Explain stock market index, provide example and what is the importance?

A: Stock market or share market is an aggregation of purchasers and sellers of stocks and helps…

Q: Critically compare the riskiness of bonds and stocks from the valuation model perspective

A: The main fundamental difference between shares and bonds as investment options is the risk involved…

Q: What is relationship between the returns on an asset and returns in the whole mark

A: A market portfolio is a theoretical concept that means a portfolio that consists of all the stocks…

Q: Examine (i) the relation between market returns and investor sentiment, and (ii) the relation…

A: the relationship between the market returns investor sentiment and conditional volatility is stated…

Classification Of Risk

Risk means when there could be a possibility that the returns expected from a particular project or investment may or may not match the investor's expectations. In other words, the uncertainty of an income arising from a source that would either be lower than expected or result in losses in risk exposure of the project. The higher the risk involved, the higher is the return expected by the investor as the investor is exposed to a high level of risk. There are various methods by which different types of risk can be assessed and avoided or mitigated.