Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Question
Chapter 8, Problem 18PS
Summary Introduction
To discuss: Whether the given statements are true or false.
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Students have asked these similar questions
A criticism of the CAPM is that it:
А.
utilizes too many factors.
В.
ignores the risk-free return
C.
ignores the return on the market portfolio.
D.
requires a single measure of systematic risk.
10. some true or false questions about the apt:
a. the apt factors cannot reflect diversifiable risks.
b. the market rate of return cannot be an apt factor.
c. each apt factor must have a positive risk premium associated with it; otherwise the model is inconsistent.
d. there is no theory that specifically identifies the apt factors.
e. the apt model could be true but not very useful, for example, if the relevant factors change unpredictably
If there is uncertainty about monetary outcome and you are concerned about return and risk, then all you need to know are the mean and standard deviation of the possible outcomes. The emtire distribution provides no extra useful information. Do you agree or disagree? Justofy your answer and provide an example to back up your argument.
Chapter 8 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 8 - Portfolio risk and return Here are returns and...Ch. 8 - Efficient portfolios For each of the following...Ch. 8 - Sharpe ratio Use the long-term data on security...Ch. 8 - Efficient portfolios Figure 8.11 purports to show...Ch. 8 - CAPM Suppose that the Treasury bill rate is 6%...Ch. 8 - CAPM True or false? a. The CAPM implies that if...Ch. 8 - APT Consider a three-factor APT model. The factors...Ch. 8 - CAPM True or false? Explain or qualify as...Ch. 8 - Portfolio risk and return Look back at the...Ch. 8 - Portfolio risk and return Mark Harrywitz proposes...
Ch. 8 - Portfolio risk and return Ebenezer Scrooge has...Ch. 8 - Portfolio beta Refer to Table 7.5. a. What is the...Ch. 8 - CAPM The Treasury bill rate is 4%, and the...Ch. 8 - Portfolio risk and return Percival Hygiene has IO...Ch. 8 - Cost of capital Epsilon Corp. is evaluating an...Ch. 8 - Prob. 18PSCh. 8 - APT Consider the following simplified APT model:...Ch. 8 - Prob. 20PSCh. 8 - Prob. 21PSCh. 8 - Prob. 22PSCh. 8 - Prob. 23PSCh. 8 - Efficient portfolios Look again at the set of the...
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Similar questions
- List which of the following statement(s) concerning risk are correct? 1. Nondiversifiable risk is measured by beta. II. The risk premium increases as diversifiable risk increases. III. Systematic risk is another name for nondiversifiable risk. IV. Diversifiable risks are market risks you cannot avoid.arrow_forwardIf the weakest form of market efficiency holds, then security prices reflect all information found in past prices and volume. Thus, traditional "technical analysis" will not work. Group of answer choices True Falsearrow_forwardMarket risk ________. a. is equal to the rate of return generated by a risk-free asset b. cannot be eliminated, as it is non-diversifiable c. is synonymous with diversifiable risk d. is synonymous with financial riskarrow_forward
- Market risk cannot be eliminated. OA. True OB. Falsearrow_forwardWhich of the following is not related to overall market variability. I am not satisfy give downvote A•Financial risk B•Interest rate risk C•Purchasing power risk D•Market riskarrow_forward1. Which of the following statements is false? a. Risk neutrality means that an investor are not looking at risk in an investment, just returns. b. Risk aversion means that an investor prefer a fixed amount with certainty over a larger amount with risk. c. Risk seeking means that an investor is willing to accept the higher risk that goes with higher payoff. d. All of the above are false. e. None of the above are false.arrow_forward
- Which of the following statements is NOT an explanation of Efficient Market Hypothesis violations? Failure to take account of transactions costs. Failure to deal properly with risk. Weak theoretical foundation. Inaccurate trading data.arrow_forwardIf we are speaking about the CAPM model and undiversifiable risks. Then what is meant by returns which are not captured by the market return.arrow_forwardAll of the following statements about an efficient market are correct EXCEPT: a. All financial transactions have an NPV of equal to zero b. A skilled individual may have sustainable above market returns c. The investor is compensated properly for risk borne d. The investor does not receive abnormal returns consistentlyarrow_forward
- Prove rigourously, "Constant relative risk aversion (CRRA) implies decreasing absolute risk aversion (DARA), but the converse is not necessarily true."arrow_forwardIf the security market is efficient in the strong form, then _____. Group of answer choices a. it is impossible to consistently outperform the market by using technical analysis, which tries to find security mispricing by analyzing historical security price data b. it is impossible to consistently outperform the market by using fundamental analysis, which tries to find security mispricing by analyzing non-price public information c. it is impossible to consistently outperform the market by using inside information d. it is impossible to consistently outperform the market by using technical analysis, fundamental analysis or inside informationarrow_forwardWhen using the binomial model, you can't make decisions about investment using only the risk-neutral measure because O all investments have the same expected rate of return in the risk-neutral measure. all investors are risk-neutral in the risk-neutral measure. all information about risk was removed from the model by switching from physical to risk-neutral measure. there are undue assumptions made in the construction of the risk-neutral measure. None of the other responses.arrow_forward
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