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
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3.Explain the difference between the following concepts in finance:
a) Capital market &
b)Debt finance& Equity finance
c)Systematic risk & unsystematic risk
d)Coupon rate of security and Its yield to maturity
Step by step
Solved in 3 steps
- 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.Which of the following is NOT a defining quality of a standard bond cash flow? a) Coupon b) Maturity c) Perpetuity Cash Flow d) Face Valueaccording 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 risk
- Which asset below is generally the most suitable benchmark measure of the risk-free return? Treasury bills Small stocks Long-term government bonds Non-investment grade bonds Common stocks1.Briefly comment on what the CAPM is for, and how it is used. How (by what) is risk measured in the financial markets?.Duration is important in understanding a fixed income portfolio because A. it is used in the capital asset pricing model B. it measures the interest rate sensitivity of a bonds value C. It measures the correlation with a bank's stock price D. It causes contagion
- Select 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 premiumsA fundamental analyst uses the discounted cashflow method to value firms, and has a short-term perspective on purchasing stocks and bonds. True or false?What are the differences between stocks and bonds in terms of predicted future payments? Which sort of investment is regarded to be riskier (stocks or bonds)? Given your knowledge, which investment (stocks or bonds) do you believe is often referred to as "fixed income"?
- 2) Suggest what is the best financial instrument to offset market risk exposure and from market volatility? 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 choiceThis is a generalized framework for analyzing the relationship between risk and return: a. capital asset pricing model b. diversification theory c. capital market line d. arbitrage pricing theory