Homework Answers
option A
risk- free rate of return is the actual interest rate that investor earn on risk free investments and it is a theoretical rate since all investments carry risk
risk free rate of return calculated by
- subtracting the inflation rate from the yield of the Treasury bond matching your investment duration.
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The risk-free rate of return Select one: a. is made up of the time preference rate...
Assume that the real risk free rate of return, r*, is 3 percent, and ir will...
Assume that the real risk free rate of return, r*, is 3 percent, and ir will remain at that level far into the future. Also assume that maturity risk premiums on treasury bonds increase from zero for bonds that mature in one year or less to a maximum of 2 percent, and MRP increases by 0.2 percent for each year to maturity that is greater than one year-- that is, MRP equal 0.2 percent for a two-year bond, 0.4 percent...
Select one A the real rate, a default risk premium and expected inflation question B. the...
Select one A the real rate, a default risk premium and expected inflation question B. the real rate, expected inflation and a default risk premium C. expected inflation, a default risk premium and a maturity premium D. the real rate, expected inflation, and a maturity premium. 25 The is the face value of the bond. Select one 0 out of A coupon X B. maturity date question C. coupon tate D. par value 26 Vitmix Industries Inc. is issuing a...
Theoretically, a risk-free portfolio could be created by combining risky securities in a manner that caused...
Theoretically, a risk-free portfolio could be created by combining risky securities in a manner that caused the: Select one: a. Nondiversifiable risk to be eliminated. b. Portfolio beta to equal zero. O c. Expected return of the portfolio to equal the market expected return. d. Risk premium to equal one. e. Portfolio standard deviation to equal one.
You live in an economy with the risk-free rate of 2% p.a. and the expected return...
You live in an economy with the risk-free rate of 2% p.a. and the expected return on the market portfolio equal to 10% p.a. and volatility of 20% p.a. You are approached by a client whose target expected return equals 8% p.a. What is the weight of the market in the portfolio meeting that return target? Select one: a. 0.50 b. 0.75 c. 0.25 d. 0.10
The risk-free rate is 5%. A risky portfolio has an expected return of 10% and a...
The risk-free rate is 5%. A risky portfolio has an expected return of 10% and a standard deviation of return of 20%. If you want to form a complete portfolio from these two assets, and you want this portfolio to have an expected return greater than 5% but less than 10% what must you do? Assume that all borrowing and lending can be done at the risk-free rate. a. Lend at the risk free rate b. borrow at the risk...
It changes over time, depending on the expected rate of return on productive assets exchanged among Real risk-free...
It changes over time, depending on the expected rate of return on productive assets exchanged among Real risk-free rate market participants and people's time preferences for consumption This is the rate on a U.S. Treasury bill or a U.S. Treasury bond This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power inflation premium over time It is based on the bond's rating: the higher the rating, the lower the premium added, thus...
The real risk-free rate of interest is expected to remain constant at 2.5%. The inflation rate is...
The real risk-free rate of interest is expected to remain constant at 2.5%. The inflation rate is expected to be 3% (Year 1), 4.2% (Year 2), and 4.6% thereafter. The maturity risk premium (MRP) is equal to 0.079(t-1)%, where t-the bond's maturity. A 4-year corporate bond yields 8%, what is the yield on a 10-year corporate bond that has the default risk and liquidity premiums 1% higher than that of the 4-year corporate bond?
The real risk-free rate of interest...
Which of the following equations is NOT correct? Quoted rate = quota risk-free rate + default risk...
Which of the following equations is NOT correct? Quoted rate = quota risk-free rate + default risk premium + liquidity premium + maturity risk premium Quoted interest rate minus real risk-free rate = Inflation premium Maturity risk premium + marketability premium = Nominal rate minus quoted risk-free rate Maturity risk premium + marketability premium + default risk premium = Nominal rate minus quoted risk-free rate You are the chief financial officer (CFO) of a regional bank in New Orleans. As you...
Required return on Stock = Risk-free return + (Market risk premium)(Stock's beta) to compensate the investor...
Required return on Stock = Risk-free return + (Market risk premium)(Stock's beta) to compensate the investor for risk. If a stock's expected return plots below the SM If a stock's expected return plots on or above the SML, then the stock's return is -Select- the stock's return is -Select- to compensate the investor for risk. The SML line can change due to expected inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up...
Determine the expected return of a company's stock given a risk free rate of 7%, an...
Determine the expected return of a company's stock given a risk free rate of 7%, an expected market return of 12%, a market risk premium of 5% and a company Beta of 1.5. O 0.115 O 0.125 O 0.135 O 0.145 Which of the following is NOT a cost to the firm of increasing debt financing? the cost of common equity will decrease. Ostockholders will demand a higher return. investors will demand a higher interest rate on debt. the risk...
Select one A the real rate, a default risk premium and expected inflation question B. the real rate, expected inflation and a default risk premium C. expected inflation, a default risk premium and a maturity premium D. the real rate, expected inflation, and a maturity premium. 25 The is the face value of the bond. Select one 0 out of A coupon X B. maturity date question C. coupon tate D. par value 26 Vitmix Industries Inc. is issuing a...
Theoretically, a risk-free portfolio could be created by combining risky securities in a manner that caused the: Select one: a. Nondiversifiable risk to be eliminated. b. Portfolio beta to equal zero. O c. Expected return of the portfolio to equal the market expected return. d. Risk premium to equal one. e. Portfolio standard deviation to equal one.
It changes over time, depending on the expected rate of return on productive assets exchanged among Real risk-free rate market participants and people's time preferences for consumption This is the rate on a U.S. Treasury bill or a U.S. Treasury bond This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power inflation premium over time It is based on the bond's rating: the higher the rating, the lower the premium added, thus...
The real risk-free rate of interest is expected to remain constant at 2.5%. The inflation rate is expected to be 3% (Year 1), 4.2% (Year 2), and 4.6% thereafter. The maturity risk premium (MRP) is equal to 0.079(t-1)%, where t-the bond's maturity. A 4-year corporate bond yields 8%, what is the yield on a 10-year corporate bond that has the default risk and liquidity premiums 1% higher than that of the 4-year corporate bond?
The real risk-free rate of interest...
Required return on Stock = Risk-free return + (Market risk premium)(Stock's beta) to compensate the investor for risk. If a stock's expected return plots below the SM If a stock's expected return plots on or above the SML, then the stock's return is -Select- the stock's return is -Select- to compensate the investor for risk. The SML line can change due to expected inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up...
Determine the expected return of a company's stock given a risk free rate of 7%, an expected market return of 12%, a market risk premium of 5% and a company Beta of 1.5. O 0.115 O 0.125 O 0.135 O 0.145 Which of the following is NOT a cost to the firm of increasing debt financing? the cost of common equity will decrease. Ostockholders will demand a higher return. investors will demand a higher interest rate on debt. the risk...
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