If all investors become less risk averse, what will happen to the SML?
Homework Answers
If investors become less risk averse, the slope of the SML becomes lesser and moves towards a horizontal line. As expected return is on the Y axis and Beta is on the X axis, investors are willing to take extra risk or Beta for a given expected return.
Add Answer to:
If
all investors become less risk averse, what will happen to the
SML?
True or false and why? 5. If all investors in the market become less risk-averse, the...
True or false and why? 5. If all investors in the market become less risk-averse, the slope of the Security Market alone (SML) will decrease. 6. If an investor purchase a enough stocks (say, S&P500 index), the investor can eliminate all of the market risk embedded in those stocks.
If all investors become less risk averse, the security market line will Multiple Choice ecurity's risk...
If all investors become less risk averse, the security market line will Multiple Choice ecurity's risk premium will have the same intercept with a steeper slope; fall have the same intercept with a flatter slope; fall shift upward; rise shift downward; fall
The following graph plots the current security market line (SML) and indicates the return that investors...
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. REQUIRED RATE OF RETURN (Percent) 20.0 16.0 12.0 Return on HC's Stock 8.0 4.0 0.0 0.5 1.0 1.5 2.0 RISK (Betal CAPM Elements Value Risk-free rate (FRF) 4.0% Market risk premium (RPM) 4.4% Happy Corp. stock's beta 2.2% Required rate of return on 7.6% Happy Corp. stock...
The security market line (SML) is an equation that shows the relationship between risk as measured...
The security market line (SML) is an equation that shows the relationship between risk as measured by beta and the required rates of return on individual securities. The SML equation is given below: If a stock's expected return plots on or above the SML, then the stock's return is -Select-insufficientsufficientCorrect 1 of Item 1 to compensate the investor for risk. If a stock's expected return plots below the SML, the stock's return is -Select-insufficientsufficientCorrect 2 of Item 1 to...
The following graph plots the current security market line (SML) and indicates the return that investors...
The following graph plots the current security market line (SML)
and indicates the return that investors require from holding stock
from Happy Corp. (HC). Based on the graph, complete the table that
follows:
Return on HC's Stock - Coordinates (1.2, 10.4)
Blue line - Slope is 4.5, Y-Intercept is 5.
CAPM Elements
Value
Risk-free rate (rRFrRF)
(10.4% / 2.8% / 5% / 5.5%)
Market risk premium (RPMRPM)
(4.5% / 5.9% / 8.1% / 3.4%)
Happy Corp. stock’s beta
(1.9 /...
vto compensate the investor for risk. If a stock's expected return plots below the SML, the stock's return is insuffici...
vto compensate the investor for risk. If a stock's expected return plots below the SML, the stock's return is insufficient to compensate the investor for risk. If a stock's expected return plots on or above the SML, then the stock's return is sufficient 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 or down parallel to the old SML. If risk aversion changes, then...
In risk-neutral valuation, we recognize that investors are risk-averse and thus modify the probability of an...
In risk-neutral valuation, we recognize that investors are risk-averse and thus modify the probability of an increase in a stock price from the real probability. (a) True (b) False
When we say that rational investors are risk-averse, it means the investor does not like risk...
When we say that rational investors are risk-averse, it means the investor does not like risk and would consider a higher risk project only if the expected return from that project is sufficient to compensate for the higher risk. True False When investors require higher rates of return for investments that have higher variability of returns, this is evidence of risk aversion. True False
Suppose investors are risk averse. Which asset has the highest required return: a risk free asset...
Suppose investors are risk averse. Which asset has the highest required return: a risk free asset or a risky asset? Assume that the expected future payoff for the two assets is the same. Explain.
Suppose that risk-averse investors expect the return on a stock to be µ per annum and...
Suppose that risk-averse investors expect the return on a stock to be µ per annum and the risk-free rate is r per annum. In a binomial tree, if µ < r, the real probability of an increase in the stock price is lower than the risk-neutral probability of the increase. (a) True (b) False
If all investors become less risk averse, the security market line will Multiple Choice ecurity's risk premium will have the same intercept with a steeper slope; fall have the same intercept with a flatter slope; fall shift upward; rise shift downward; fall
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. REQUIRED RATE OF RETURN (Percent) 20.0 16.0 12.0 Return on HC's Stock 8.0 4.0 0.0 0.5 1.0 1.5 2.0 RISK (Betal CAPM Elements Value Risk-free rate (FRF) 4.0% Market risk premium (RPM) 4.4% Happy Corp. stock's beta 2.2% Required rate of return on 7.6% Happy Corp. stock...
The following graph plots the current security market line (SML)
and indicates the return that investors require from holding stock
from Happy Corp. (HC). Based on the graph, complete the table that
follows:
Return on HC's Stock - Coordinates (1.2, 10.4)
Blue line - Slope is 4.5, Y-Intercept is 5.
CAPM Elements
Value
Risk-free rate (rRFrRF)
(10.4% / 2.8% / 5% / 5.5%)
Market risk premium (RPMRPM)
(4.5% / 5.9% / 8.1% / 3.4%)
Happy Corp. stock’s beta
(1.9 /...
vto compensate the investor for risk. If a stock's expected return plots below the SML, the stock's return is insufficient to compensate the investor for risk. If a stock's expected return plots on or above the SML, then the stock's return is sufficient 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 or down parallel to the old SML. If risk aversion changes, then...
Most questions answered within 3 hours.
-
The probabilities that an engineering student will get an A, C,
or F on an engineering...
asked 13 minutes ago -
How does smoking affect testosterone levels in males?
Here is some data, where testosterone was measured...
asked 11 minutes ago -
A sledge loaded with bricks has a total mass of 18.5 kg and is
pulled at...
asked 8 minutes ago -
1. What is the y component of a vector (in the xy plane) whose
magnitude is...
asked 12 minutes ago -
Two conducting spheres, one of radius 0.030 m. and the other of
radius 0.140 m., each...
asked 21 minutes ago -
You launch a projectile toward a tall building, from a position
on the ground 35.2 m...
asked 20 minutes ago -
For the reaction shown, calculate how many moles of NH3 form
when each amount of reactant...
asked 30 minutes ago -
The pressure reading in a mercury barometer is 76 cm. Convert
this into N/m^2. If a...
asked 37 minutes ago -
If 0.98 is the cross elasticity of demand for Gasoline with
respect to Diesel,
Gasoline is...
asked 40 minutes ago -
Mccabe Corporation uses the weighted-average method in its
process costing. The following data pertain to its...
asked 40 minutes ago -
Assume that the United States has 293.7 million acres of
biologically productive land. How many acres...
asked 45 minutes ago -
1. Deferred taxes may be classified as either current or
non-current under IFRS. True or false...
asked 46 minutes ago