1. Explain why investors require higher risk premium for a stock with higher systematic risk.
1. Explain why investors require higher risk premium for a stock with higher systematic risk.
Homework Answers
Stock with higher systematic risk(beta) will have higher risk, meaning with change in market rate, the change in expected rate will be higher for high beta stock. So for compensating investors for bearing higher risk higher return is required in the form of higher risk premium.
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1. Explain why investors require higher risk premium for a stock
with higher systematic risk.
PLEASE EXPLAIN WHY ANSWER IS TRUE OR FALSE: "Risk aversion" implies that investors require higher expected...
PLEASE EXPLAIN WHY ANSWER IS TRUE OR FALSE: "Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities. a. True b. False When adding a randomly chosen new stock to an existing portfolio, the higher (or more positive) the degree of correlation between the new stock and stocks already in the portfolio, the less the additional stock will reduce the portfolio's risk. a. True b. False An individual stock's diversifiable risk, which is measured...
Explain why the risk premium of a stock does not depend on its diversifiable risk.
Explain why the risk premium of a stock does not depend on its diversifiable risk.
What is systematic risk vs. nonsystematic risk? Should both of these risks be compensated with higher...
What is systematic risk vs. nonsystematic risk? Should both of these risks be compensated with higher returns? Why or Why not?
Suppose the market risk premium is 6% and the risk-free interest rate is 4%. Using the data in the table, calculate the expected return of investing in a. Starbucks' stock. b. Hershey's stock. c. Autodesk's stock. Why don't all investors hold Auto
Suppose the market risk premium is 6% and the risk-free interest rate is 4%. Using the data in the table, calculate the expected return of investing ina. Starbucks' stock.b. Hershey's stock.c. Autodesk's stock.Why don't all investors hold Autodesk's stock rather than Hershey's stock?
8. Systematic risk is rewarded with a premium in the marketplace because: A. risk is particular...
8. Systematic risk is rewarded with a premium in the marketplace because: A. risk is particular to the stock or industry. B. it represents a random occurrence which could not have been foreseen. C. it is associated with market movements which cannot be eliminated through diversification. D. None of the above
A stock has a beta of 0.95. The systematic risk of this stock is ____________ the...
A stock has a beta of 0.95. The systematic risk of this stock is ____________ the stock market as a whole. A. indeterminable compared to B. equal to C. lower than D. higher than
1. Assuming that the pure rate of interest is 2%, and investors require an inflation premium...
1. Assuming that the pure rate of interest is 2%, and investors require an inflation premium of 3.5% and a risk premium of 6% to invest in a certain security, calculate the following rates using the multiplicative form of the Fisher model: The nominal rate of interest on the security The real rate of interest on the security The risk-free rate of interest on securities of this maturity (2 decimal places) 2. An Inyo County California municipal bond is...
true or false: according to the CPM, the risk for a security with high diversifiable risk and high systematic risk is grater than the risk premium for a security with low diversifiable risk and high systematic risk.
true or false: according to the CPM, the risk for a security with high diversifiable risk and high systematic risk is grater than the risk premium for a security with low diversifiable risk and high systematic risk.
QUESTION 24 Exposure to non-systematic risk is rewarded with higher expected return. Conversely, exposure to systematic...
QUESTION 24 Exposure to non-systematic risk is rewarded with higher expected return. Conversely, exposure to systematic risk is not rewarded with higher expected returns. True False
If investors anticipate a 7.0% risk-free rate, the market risk premium = 5.0%, beta = 1,...
If investors anticipate a 7.0% risk-free rate, the market risk premium = 5.0%, beta = 1, Find the return.
QUESTION 24 Exposure to non-systematic risk is rewarded with higher expected return. Conversely, exposure to systematic risk is not rewarded with higher expected returns. True False
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