Homework Answers
Non-diversifiable risk is also known as systematic risk or market risk
It is measured by Beta
Risk premium increases as non-diversifiable risk increases
Hence, the correct statements are
I and III only
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Which of the following statements concerning risk are correct? I. Non diversifiable risk is measured by...
Which of the following statements are correct concerning interest rate risk? I. The shorter the term,...
Which of the following statements are correct concerning interest rate risk? I. The shorter the term, the greater the interest rate risk. Il. The longer the term, the greater the interest rate risk. IIl The lower the coupon rate, the greater the interest rate risk. IV. The higher the coupon rate, the higher the interest rate risk. Select one: a. I and IV only Ob. I, II, Il and IV only O c. Il and IV only O d. I...
Which of the following statements is/are INCORRECT? I. Beta measures a security's market risk, also known...
Which of the following statements is/are INCORRECT? I. Beta measures a security's market risk, also known as systematic risk. II. SML is a graphical depiction of WACC model. III. If investors become more risk averse, the slope of SML will increase accordingly. IV. Other things being equal, a security's required rate of return doubles when its beta value doubles. V. Diversification will normally reduce the riskiness of a portfolio of securities. VI. Federal Reserve cuts an interest rate is considered...
The non-diversifiable risk of the stock market is measured by: a beta of 1.0. a beta of 0.0. a standard deviation o...
The non-diversifiable risk of the stock market is measured by: a beta of 1.0. a beta of 0.0. a standard deviation of 1.0. a standard deviation of 0.0.
Need help with this question: Use the following three statements to answer this question: I. The...
Need help with this question:
Use the following three statements to answer this question:
I. The CAPM points out that rational investors should be
compensated for unique risk.
II. The CAPM implies that non-systematic risk is the appropriate
measure of risk to determine the risk premium required by investors
for holding a risky security.
III. The expected return from non-systematic risk is
zero.
a
I, II and III are correct.
b
I and II are incorrect, III is correct.
c...
(a) In CAPM framework, there are risks that are diversifiable. What are the non-diversifiable risks? (2...
(a) In CAPM framework, there are risks that are diversifiable. What are the non-diversifiable risks? (2 marks) (b) See table 1 below. With respect to the CAPM, which of the following asset would have the greatest impact on the expected return if there is a rise in the expected market return? (2 marks) Table 1 Asset Standard Deviation Beta Asset 1 22% 0.5 Asset 2 15% 1.2 Asset 3 20% 0.9 (c) Suppose the following information about a stock is...
Which statements are TRUE regarding risk and return? Statement I: Diversification is the process of removing...
Which statements are TRUE regarding risk and return? Statement I: Diversification is the process of removing systematic risk from a portfolio. Statement II: In general, the greater the risk, the greater the return required by an investor. Statement III: Investors should focus on real returns if they are concerned about the purchasing power of their wealth. Options de la question 35 : Statement I only Statements I and II only Cannot tell from the given information Statements I and III...
6) Which of the following statements concerning the constant-growth dividend valuation model is (ar) correct 1....
6) Which of the following statements concerning the constant-growth dividend valuation model is (ar) correct 1. One simple method of estimating the dividend growth rate is to analyze the historical paltem of dividends II. The expected total return equals the return from capital gains plus the return from dividends TIL. The model is applicable to growth firms with initially high growth rates. IV. The intrinsic value calculated using this method can change from one investor to another if their risk-return...
Which of the following statements about risk measures is correct? a. Beta is a measure of...
Which of the following statements about risk measures is correct? a. Beta is a measure of systematic risk, whereas standard deviation is the measure of total risk. b. Beta is a measure of total risk, whereas standard deviation is the measure of unsystematic risk. c. Beta is a measure of total risk, whereas standard deviation is the measure of systematic risk. d. Beta is a measure of total risk, whereas Standard deviation is the measure of systematic risk. e. Beta...
1. Which of the following statements concerning insurance underwriting is (are) correct? I. Underwriting is the...
1. Which of the following statements concerning insurance underwriting is (are) correct? I. Underwriting is the selection and pricing of insurance applications that are offered to an insurer. II. Underwriting attempts to avoid adverse selection by individuals who purchase insurance. A I only B. II only C. Both I and II D. Neither I nor II 2. Which of the following statements concerning modified endowment contracts (MECs) is (are) correct? I. Any policy that is paid up prior to age...
Which of the following statements is true? A. total risk = nondiversifiable risk + diversi fiable...
Which of the following statements is true? A. total risk = nondiversifiable risk + diversi fiable risk. B. An efficient market does not have systematic risk. C. An efficient market does not have non-diversifiable risk. D. none of the above is true.
Which of the following statements are correct concerning interest rate risk? I. The shorter the term, the greater the interest rate risk. Il. The longer the term, the greater the interest rate risk. IIl The lower the coupon rate, the greater the interest rate risk. IV. The higher the coupon rate, the higher the interest rate risk. Select one: a. I and IV only Ob. I, II, Il and IV only O c. Il and IV only O d. I...
Which of the following statements is/are INCORRECT? I. Beta measures a security's market risk, also known as systematic risk. II. SML is a graphical depiction of WACC model. III. If investors become more risk averse, the slope of SML will increase accordingly. IV. Other things being equal, a security's required rate of return doubles when its beta value doubles. V. Diversification will normally reduce the riskiness of a portfolio of securities. VI. Federal Reserve cuts an interest rate is considered...
The non-diversifiable risk of the stock market is measured by: a beta of 1.0. a beta of 0.0. a standard deviation of 1.0. a standard deviation of 0.0.
Need help with this question:
Use the following three statements to answer this question:
I. The CAPM points out that rational investors should be
compensated for unique risk.
II. The CAPM implies that non-systematic risk is the appropriate
measure of risk to determine the risk premium required by investors
for holding a risky security.
III. The expected return from non-systematic risk is
zero.
a
I, II and III are correct.
b
I and II are incorrect, III is correct.
c...
(a) In CAPM framework, there are risks that are diversifiable. What are the non-diversifiable risks? (2 marks) (b) See table 1 below. With respect to the CAPM, which of the following asset would have the greatest impact on the expected return if there is a rise in the expected market return? (2 marks) Table 1 Asset Standard Deviation Beta Asset 1 22% 0.5 Asset 2 15% 1.2 Asset 3 20% 0.9 (c) Suppose the following information about a stock is...
6) Which of the following statements concerning the constant-growth dividend valuation model is (ar) correct 1. One simple method of estimating the dividend growth rate is to analyze the historical paltem of dividends II. The expected total return equals the return from capital gains plus the return from dividends TIL. The model is applicable to growth firms with initially high growth rates. IV. The intrinsic value calculated using this method can change from one investor to another if their risk-return...
Which of the following statements about risk measures is correct? a. Beta is a measure of systematic risk, whereas standard deviation is the measure of total risk. b. Beta is a measure of total risk, whereas standard deviation is the measure of unsystematic risk. c. Beta is a measure of total risk, whereas standard deviation is the measure of systematic risk. d. Beta is a measure of total risk, whereas Standard deviation is the measure of systematic risk. e. Beta...
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