Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. All assets are perfectly divisible and liquid. ✔Investors assume that their investment activities won't affect the price of a stack. There are no transaction costs. Assets have unique liquidity. Consider the equation for the Capital Asset Pricing Model (CAPM): 7 = TRF + (M-TRF) X In this equation, the term (M-TRF) represents the Suppose that the market's average excess return on stocks is 12.00% and that the risk-free rate is 1.00%. Complete the following tab expected returns to stocks for each beta coefficient using the Capital Asset Pricing Model (CAPM): bi -0.50 0.30 Cov(ri.TM) 0²M 1.00 3.00 Expected Return to Stocks (%) Based on the CAPM and your calculations for the return to stocks, what does it mean when the coefficient b, > 1? The stock's return correlates with the stock market as a whole. O The stock is more volatile than the market.

Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. All assets are perfectly divisible and liquid. ✔Investors assume that their investment activities won't affect the price of a stack. There are no transaction costs. Assets have unique liquidity. Consider the equation for the Capital Asset Pricing Model (CAPM): 7 = TRF + (M-TRF) X In this equation, the term (M-TRF) represents the Suppose that the market's average excess return on stocks is 12.00% and that the risk-free rate is 1.00%. Complete the following tab expected returns to stocks for each beta coefficient using the Capital Asset Pricing Model (CAPM): bi -0.50 0.30 Cov(ri.TM) 0²M 1.00 3.00 Expected Return to Stocks (%) Based on the CAPM and your calculations for the return to stocks, what does it mean when the coefficient b, > 1? The stock's return correlates with the stock market as a whole. O The stock is more volatile than the market.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the following contingent claim whose value at maturity date T is given by f(T,Sp) = min(Sr S;) where T, is some intermediate betweent (current time) and T (maturity date). Sr, and Sr denote the prices of the underlying asset at time To and time T respectively. We assume that the asset is non-dividend paying and its asset price satisfies dS; = uS,dt + oS,dW, with u = 0.05, a = 0.2. The riskfree interest rate is 6% per annum. Take t = 0, T, = 0.5 and T = 1.5. The current price of the asset is So = $25. (a) Calculate the price of the contingent claim at time Ta using replication technique. Express your answer in terms of ST.. (©Hint: The value of S, is known at time To. To find the price, treat T, as the "current time"). (b) Using the result of (a), find the current price of this contingent claim using risk neutral valuation principle
5. Choose from the following that is NOT a major element of the working capital cycle? A Long-term loan B Trade payables C Inventory D Cash
1. Explain briefly on “Relevant Cost & Irrelevant Cost”.2. “What is Financial Leverage”? Explain with appropriate illustration.3. Explain the cocept of “Systematic & Non-Systematic Risk”.4. Why is preference capital considered as a hybrid source of financing?
Which of the following statements true? I. All else equal, an increase in storage costs, decreases the value of the forward on an asset All else equal, an increase in convenience yield, decreases the value of the forward on an asset I. A) I. and II. are true B) I. is true and II. is false C) II. is true and I. is false D) I. and II. are false Win Win
Using a graph, explain when a security is overpriced, under-priced or fairly priced according to the Capital Asset Pricing Model.
Which of the following is TRUE? I. Internal rate of return (IRR) is a major method for determining the cost of equity. II. The cost of capital depends on the source of the funds. Group of answer choices I and II II only Neither I nor II I only
Identify the one true statement. a. The B/C method determines the ratio of the present worth of benefits to the negative of the future worth of the investments. b. The CW method determines the present worth using a finite planning horizon. c. The IRR method determines the interest rate that yields a future worth of zero. d. The ERR method determines the interest rate that yields a present worth of zero.
Define negative working capital. Is a negative working capital a sign of illiquidity or of liquidity? Use the framework identified by Fazzari and Petersen, 1993
(;). » - ( ) Consider two assets: rı = 3 If the asset prices are q1 = 1, q2 = 2 () 1+ a respectively, does the price of an asset with returns 1 in the two states - a. = 1 - a satisfy the no arbitrage property? (Record your answer as respectively, q 'True' (=yes) or 'False' (=no).
The slope of the Security Market Line equals to ____, and the slope of Capital Allocation Line equals to____. Select one: A. Beta; Sharpe Ratio B. Market Risk Premium; Sharpe Ratio C. Risk free rate; Volatility D. Market Risk Premium; Volatility
A financial market helps facilitate the flow of capital from where it is to where it is wanted..... needed expensive.... free available..... needed valued.... wasted Oneeded...... available
1. Fill the parts in the above table that are shaded in yellow. 2.Using the data generated in the previous question (Question 1) a. Plot the Security Market Line (SML) b. Superimpose the CAPM’s required return on the SML c.Indicate which investments will plot on, above and below the SML? d.

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