1a) Identify and briefly describe four (4) types of instruments used in the money market b) Explain how diversification can ensure that the risk of a company’s portfolio is not as high as the risk associated with some of the individual risky assets included in the portfolio?
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1a) Identify and briefly describe four (4) types of instruments used in the
b) Explain how diversification can ensure that the risk of a company’s portfolio
is not as high as the risk associated with some of the individual risky assets
included in the portfolio?
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Solved in 3 steps
- Which statement is not true regarding the market portfolio? Group of answer choices a. It includes all publicly-traded financial assets. b. It lies on the efficient frontier. c. All securities in the market portfolio are held in proportion to their market values. d. It is the tangency point between the capital market line and the indifference curve.The Capital Asset Pricing Model (CAPM) considers which type of risk in pricing the expected returns and risk of securities? A) Systemic risk. B) Unsystemic risk. C) Diversifiable risk. D) Non-market risk.Do you agree with the following statement? And explain why. “The Capital Asset Pricing Model [CAPM] assumes that the stock market is dominated by welldiversified investors who are concerned with specific risk. “
- 1. What are the quantitative characteristics of the assets and how to measure them? 2. How does one asset in the same portfolio influence the other one in the same portfolio? 3.And what could be the influence of this relationship to the investor’s portfolio? 4. What is relationship between the returns on an asset and returns in the whole market (market portfolio)3.Explain the difference between the following concepts in finance: a) Capital market & money market b)Debt finance& Equity finance c)Systematic risk & unsystematic risk d)Coupon rate of security and Its yield to maturity“The Capital Asset Pricing Model [CAPM] assumes that the stock market is dominated by well-diversified investors who are concerned with specific risk. “ is the following statment correct? And explain why.
- What does the capital asset pricing model (CAPM) calculate? a. The expected rate of return on an individual stock with respect to the risk-free rate of return b. The expected rate of return of an individual stock based on its overall risk c. The expected rate of return of an individual stock with respect to its market risk only d. The expected rate of return of an individual stock reflecting its financial risk Clear my choiceaccording to capm the expected return on equity includes a reward for: a. market risk and specific risk b. Specific risk only c. Time value of money and market risk d. Diversification and portfolio risk e. Time value of money and specific riskThis question relates to the two types of risk and to diversification. a)What is specific risk? b)What is market risk? c)What is meant by diversification? d)Explain why diversification is a useful tool to manage specific risk but not market risk. Be sure you answer clearly both why diversification can help manages specific risk as well as why it is not useful in managing market risk. e)Approximately how many stocks in a portfolio do you need to be fully diversified?
- a) Distinguish between systematic risk and unsystematic risk, and explain the significance of the distinction in portfolio analysis. b) Explain what is meant by a share’s beta value. c) Outline the main practical problems in using the CAPM in capital investment decisions. d) Discuss the assumption in CAPM analysis that corporate debt has a zero beta valueSelect 2–3 of the topics below and discuss how they each influence financial decisions regarding risk and return: The capital asset pricing model (CAPM) The constant–growth model Compute forward-looking expected return and risk Risk premiumsMarket risk arises from the level or volatility of market prices of assets. It involves the exposure to movements in the level of financial variables such as share prices, interest rates, exchange rates or commodity prices. Briefly explain SEVEN (7) the types of risk in this category, which corresponds to market risk in the risk framework