Homework Answers
C.considers the relationship between the fluctuations in a security's returns versus the market's returns.
CAPM applies to both portfolios and individual securities.
Beta is the measure of change is security's return in response to change in market return, CAPM considers beta.
Market beta is always one and not zero.
Market risk premium changes with time and is not constant.
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The capital asset pricing model: applies to portfolios but not too individual securities. rewards investors based...
Which one of the following statement about the capital asset pricing model is correct 1) assumes...
Which one of the following statement about the capital asset pricing model is correct 1) assumes the market has a beta of zero. 2) rewards investors based on systematic risk. 3) applies to portfolios but not to individual securities. 4) rewards investors based on unsystematic risk.
Question 13 (0.2 points) Which one of the following is the computation of the risk premium...
Question 13 (0.2 points) Which one of the following is the computation of the risk premium for an individual security? E(R) is the expected return on the security, Rfis the risk-free rate, B is the security's beta, and E(RM) is the expected rate of return on the market. O 1) E(RM) - RF O2) B[E(RM) - RA O 3) E(R) - E(RM) 04) E(R) - [E(RM) + RA View hint for Question 13 Question 14 (0.2 points) Which one of...
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
Term Description Risk A. The term applied to the risk of an asset that is measured...
Term Description Risk A. The term applied to the risk of an asset that is measured by the standard deviation of the asset's expected returns. That portion of an investment's risk calculated as the difference between its total risk and its firm-specific risk. Expected rate of return B. Beta coefficient L C . This model determines the appropriate required return on a security as the sum of the market's risk-free rate and a risk premium based on the market's risk...
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...
Term Answer Description Risk A. The risk of an asset when it is the only asset...
Term Answer Description Risk A. The risk of an asset when it is the only asset in an investor's portfolio. Expected rate of return That portion of an investment's risk calculated as the difference between its total risk and its firm-specific risk. Beta coefficient This model determines the appropriate required return on a security as the sum of the market's risk-free rate and a risk premium based on the market's risk premium and the security's beta coefficient. Market risk The...
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...
Ch 02: Assignment - Risk and Return: Part 1 Term Answer Risk A Expected rate of...
Ch 02: Assignment - Risk and Return: Part 1 Term Answer Risk A Expected rate of return B Description The rate of return expected to be realized from an investment, calculated as the mean of the probability distribution of its possible returns. The term applied to the risk of an asset that is measured by the standard deviation of the asset's expected returns. The possibility that an actual outcome will be better or worse than its expected outcome The general...
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...
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.Investors assume that their investment activities won't affect the price of a stock.There are no taxes.Assets won't be short sold.Asset quantities aren't given.Consider the equation for the Capital Asset Pricing Model (CAPM):$$ \hat{r}_{1}=r_{R F}+\left(\hat{r}_{M}-r_{R F}\right) \times \frac{\operatorname{Cov}\left(r_{i}, r_{M}\right)}{\sigma_{M}^{2}} $$In this equation, the term \(r_{R F}\) represents therate of return on a risk-free bondSuppose that the market's average excess return on stocks is 6.00 %...
Question 13 (0.2 points) Which one of the following is the computation of the risk premium for an individual security? E(R) is the expected return on the security, Rfis the risk-free rate, B is the security's beta, and E(RM) is the expected rate of return on the market. O 1) E(RM) - RF O2) B[E(RM) - RA O 3) E(R) - E(RM) 04) E(R) - [E(RM) + RA View hint for Question 13 Question 14 (0.2 points) Which one of...
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
Term Description Risk A. The term applied to the risk of an asset that is measured by the standard deviation of the asset's expected returns. That portion of an investment's risk calculated as the difference between its total risk and its firm-specific risk. Expected rate of return B. Beta coefficient L C . This model determines the appropriate required return on a security as the sum of the market's risk-free rate and a risk premium based on the market's risk...
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...
Term Answer Description Risk A. The risk of an asset when it is the only asset in an investor's portfolio. Expected rate of return That portion of an investment's risk calculated as the difference between its total risk and its firm-specific risk. Beta coefficient This model determines the appropriate required return on a security as the sum of the market's risk-free rate and a risk premium based on the market's risk premium and the security's beta coefficient. Market risk The...
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...
Ch 02: Assignment - Risk and Return: Part 1 Term Answer Risk A Expected rate of return B Description The rate of return expected to be realized from an investment, calculated as the mean of the probability distribution of its possible returns. The term applied to the risk of an asset that is measured by the standard deviation of the asset's expected returns. The possibility that an actual outcome will be better or worse than its expected outcome The general...
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...
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