Homework Answers
Question-22)
The asset pricing theory based on beta,is a measure of Market risk is:
Ans- OPTION A. Capital Asset Pricing Model.
As CAPM Model, measures how much required return an asset have based on assets beta and Market Risk Premium.
Ques_23)
Ans- Option A. Security Market Line.
Capital Market Line shows return of a specific portfolio using Standard deviation while Security market line shows rrequired return based on beta.
Ques_24)
Ans- Option A. All the statements are concern regarding beta.
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Question 22 (Mandatory) (3.2 points) Which of the following is the asset pricing theory based on...
Question 25 (Mandatory) (3.2 points) Which of the following is most correct? O In an efficient...
Question 25 (Mandatory) (3.2 points) Which of the following is most correct? O In an efficient market, investors will sell overvalued stock which will drive its price down. In an efficient market, investors will sell undervalued stock which will drive its price down. O In an efficient market, investors will buy overvalued stock which will drive its price down. None of these statements is correct. Question 14 (Mandatory) (3.2 points) Saved A bond's current yield is defined as: O the...
Question 2 (30 points) 2.1 (12 points) State the assumptions of the Capital Asset Pricing Model...
Question 2 (30 points) 2.1 (12 points) State the assumptions of the Capital Asset Pricing Model (CAPM). Explain and, where relevant, demonstrate on a graph the following concepts: (a) Capital Market Equilibrium in CAPM (b) Capital Market Line (c) Expected return for an arbitrary asset j: E(r;) = PRE + B,(E(TM) - PRF). Contrast this with the expected return on an efficient portfolio (d) Systematic and idiosyncratic risk
Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that...
Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. O Asset quantities are given and fixed. There are no transaction costs. Taxes are accounted for. All investors focus on a single holding period. O Consider the equation for the Capital Asset Pricing Model (CAPM): Cov(ri, rm) ři = rre + Cím – PRF) x In this equation, the term Cov(ri, rm) / om represents the Suppose that the market's average excess return...
Based on the capital asset pricing model, investors are compensated based on which of the following?...
Based on the capital asset pricing model, investors are compensated based on which of the following? I. Market risk premium II. Risk-free rate III. Portfolio beta IV. Unsystematic risk 1) I, II, III, and IV 2) II and IV only 3) 1,111, and IV only 4) I and III only 5) I, II, and Ill only
Explain the concepts of variance (total risk) and beta (systematic risk) in portfolio theory and the capital asset pricing model. Also explain why according to the capital asset pricing model that tot...
Explain the concepts of variance (total risk) and beta (systematic risk) in portfolio theory and the capital asset pricing model. Also explain why according to the capital asset pricing model that total risk should not be rewarded by the capital market. You may use diagrams in your explanation if you wish.
Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital...
Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon located on the top-r spreadsheet) Risk free Market rate, R. Beta, 2% 7% 0.9 O retur, The required retum for the set is % (Round to two decimal places)
3. The basics of the Capital Asset Pricing Model Aa Aa which of the following are...
3. The basics of the Capital Asset Pricing Model Aa Aa which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply Investors have identical estimates of expected retums but not of variances. Investors can borrow an unlimited amount at a risk-free rate Investors assume that their investment activities won't affect the price of a stock. All investors are price givers. Consider the equation for the Capital Asset Pricing Model (CAPM): Cov(, M) In...
Question 2: Using the CAPM (capital asset pricing model) and SML (security market line), what is...
Question 2: Using the CAPM (capital asset pricing model) and SML (security market line), what is the expected rate of return for an investment with a Beta of 1.8, a risk free rate of return of 4%, and a market rate of return of 10%.
3. The basics of the Capital Asset Pricing Model Which of the following are assumptions of...
3. The basics of the Capital Asset Pricing Model Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. Expected returns are based on individual investor risk sensitivity. Investors have homogeneous expectations. There are no taxes. All investors focus on a single holding period. Consider the equation for the Capital Asset Pricing Model (CAPM): = TRF + OM-TRF) x Cover o In this equation, the term (OM-TRF) represents the Suppose that the market's...
Question 3. Capital asset pricing model. (2 points) The expected return on the market portfolio is...
Question 3. Capital asset pricing model. (2 points) The expected return on the market portfolio is 9%. The risk free rate is 5%. The variance of the market portfolio returns is 0.08 and the covariance of the market and GE returns is 0.06. Calculate beta for GE. a) Interpret what beta means. b) Calculate the expected return for GE stock, how is it compared to the expected return on the market portfolio? c) If you form a portfolio with 75%...
Question 25 (Mandatory) (3.2 points) Which of the following is most correct? O In an efficient market, investors will sell overvalued stock which will drive its price down. In an efficient market, investors will sell undervalued stock which will drive its price down. O In an efficient market, investors will buy overvalued stock which will drive its price down. None of these statements is correct. Question 14 (Mandatory) (3.2 points) Saved A bond's current yield is defined as: O the...
Question 2 (30 points) 2.1 (12 points) State the assumptions of the Capital Asset Pricing Model (CAPM). Explain and, where relevant, demonstrate on a graph the following concepts: (a) Capital Market Equilibrium in CAPM (b) Capital Market Line (c) Expected return for an arbitrary asset j: E(r;) = PRE + B,(E(TM) - PRF). Contrast this with the expected return on an efficient portfolio (d) Systematic and idiosyncratic risk
Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. O Asset quantities are given and fixed. There are no transaction costs. Taxes are accounted for. All investors focus on a single holding period. O Consider the equation for the Capital Asset Pricing Model (CAPM): Cov(ri, rm) ři = rre + Cím – PRF) x In this equation, the term Cov(ri, rm) / om represents the Suppose that the market's average excess return...
Based on the capital asset pricing model, investors are compensated based on which of the following? I. Market risk premium II. Risk-free rate III. Portfolio beta IV. Unsystematic risk 1) I, II, III, and IV 2) II and IV only 3) 1,111, and IV only 4) I and III only 5) I, II, and Ill only
Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon located on the top-r spreadsheet) Risk free Market rate, R. Beta, 2% 7% 0.9 O retur, The required retum for the set is % (Round to two decimal places)
3. The basics of the Capital Asset Pricing Model Aa Aa which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply Investors have identical estimates of expected retums but not of variances. Investors can borrow an unlimited amount at a risk-free rate Investors assume that their investment activities won't affect the price of a stock. All investors are price givers. Consider the equation for the Capital Asset Pricing Model (CAPM): Cov(, M) In...
3. The basics of the Capital Asset Pricing Model Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. Expected returns are based on individual investor risk sensitivity. Investors have homogeneous expectations. There are no taxes. All investors focus on a single holding period. Consider the equation for the Capital Asset Pricing Model (CAPM): = TRF + OM-TRF) x Cover o In this equation, the term (OM-TRF) represents the Suppose that the market's...
Question 3. Capital asset pricing model. (2 points) The expected return on the market portfolio is 9%. The risk free rate is 5%. The variance of the market portfolio returns is 0.08 and the covariance of the market and GE returns is 0.06. Calculate beta for GE. a) Interpret what beta means. b) Calculate the expected return for GE stock, how is it compared to the expected return on the market portfolio? c) If you form a portfolio with 75%...
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