Due to an unexpected pandemic, the uncertainty levels have gone up tremendously in the financial markets. Among other things, this increased uncertainty would cause the market value ratios to increase. Group of answer choices True False

Due to an unexpected pandemic, the uncertainty levels have gone up tremendously in the financial markets. Among other things, this increased uncertainty would cause the market value ratios to increase. Group of answer choices True False

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 8MC: You have been hired at the investment firm of Bowers & Noon. One of its clients doesn’t understand...

See similar textbooks

Similar questions

Suppose that as the economy moves through a business cycle, risk premiums also change. For example, in a recession, when people are concerned about their jobs, risk tolerance might be lower and risk premiums might be higher. In a booming economy, tolerance for risk might be higher and premiums lower.a. Would a predictably shifting risk premium such as described here be a violation of the efficient market hypothesis?b. How might a cycle of increasing and decreasing risk premiums create an appearance that stock prices “overreact,” first falling excessively and then seeming to recover?
Which of the following statements is most correct? Why?* a. If a market is weak-form efficient, this means that prices rapidly reflect all available public information. b. If a market is weak-form efficient, this means that you can expect to beat the market by using technical analysis that relies on the charting of past prices. c. If a market is strong-form efficient, this means that all stocks should have the same expected return. d. All of the statements above are correct. c. None of the statements above is correct.
What can you tell just by looking at the above yield curve? Group of answer choices An expectation of falling interest rates suggests trouble in the economy, a rise in bond prices, and a decline for stocks. The economy is expected to do well in the short-run. A correction in bond prices is expected. Bond prices are expected to decline and so the stock market should do extremely well.
Which of the following is an example of unsystematic risk? XYZ corp stock price fell when the news of a drop in GDP was released. When the new employment numbers showed the economy is creating more jobs, the stock market rose. ABC Manufacturing stock price falls upon the announcement that they have a parts shortage from their suppliers When news of strong consumer demand was released, proctor and gamble stock price rose The stock market rose at the announcement of higher GDP numbers
Which of the following is NOT a potential problem when estimating and using betas, i.e., which statement is FALSE? a. Sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different from the "true" or "expected future" beta. b. The beta of an "average stock," or "the market," can change over time, sometimes drastically. c. Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed. d. All of the statements above are true. e. The fact that a security or project may not have a past history that can be used as the basis for calculating beta.
Select all that are takeaways with respect to risk and return in financial markets that we gleaned from historical data. Group of answer choices In a competitive market, one should expect higher returns for taking on more risk In a competitive market, one will earn a higher return if they take on more risk Individual stocks and portfolios (of those individual stocks), by definition, exhibit the same risk-return trade offs We use historical data to quantify the risk-return relation because we know this same relation will hold in the future
Many financial economists believe that the random walk model is a gooddescription of the logarithm of stock prices. It implies that the percentagechanges in stock prices are unforecastable. A financial analyst claims to havea new model that makes better predictions than the random walk model.Explain how you would examine the analyst’s claim that his model is superior?
Suppose that Federal Reserve actions have caused an increase in the risk-free rate, rRF. Meanwhile, investors are afraid of a recession, so the market risk premium, (rM - rRF), has increased. Under these conditions, with other things held constant, which of the following statements is most correct and why? A. The required return on all stocks would increase, but the increase would be greatest for stocks with betas of less than 1.0. B. The prices of all stocks would decline, but the decline would be greatest for the highest-beta stocks. C. The prices of all stocks would increase, but the increase would be greatest for the highest-beta stocks. D. The required return on all stocks would increase by the same amount.
Suppose that Federal Reserve actions have caused an increase in the risk-free rate, rRF. Meanwhile, investors are afraid of a recession, so the market risk premium, (rM − rRF), has increased. Under these conditions, with other things held constant, which of the following statements is most correct? a. The required return on all stocks would increase, but the increase would be greatest for stocks with betas of less than 1.0. b. Stocks' required returns would change, but so would expected returns, and the result would be no change in stocks' prices. c. The prices of all stocks would decline, but the decline would be greatest for high-beta stocks. d. The prices of all stocks would increase, but the increase would be greatest for high-beta stocks. e. The required return on all stocks would increase by the same amount.
Often, more than one kind of shock hits the economy at once. When this happens, the different shocks could push the price level in different directions in the short run, leaving the final short-term result ambiguous. What is most likely to happen the price level and real GDP (i.e., output) in the following cases? Will they rise, or fall, or can’t you tell with information given? Note that you will not always be able to know the answer for one, but not the other. Motivate your answer. A nation’s scientists invent many new internet search tools, raising current productivity and making investors optimistic about future inventions as well. A government raises taxes, and its economy experiences a year of excellent weather for growing crops. Oil prices skyrocket and the central banks slows the rate of money growth.
1.Why will the standard deviation not be a good measure of risk when returns are negatively skewed? 2. What are the risk implications for an investor for a returns series that exhibits fat tails? 3. A price weighted index places more weight on stocks with a higher price, whilst a value weighted index places more weight on stocks with a higher market capitalization. Discuss.
In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was rA = 3.1%. The rate of return on Bpex was only rB = 2.5%. The market today responded to very encouraging news about the unemployment rate, and rM = 3%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as:Apex: rA = .2% + 1.4rM Bpex: rB = −.1% + .6rMOn the basis of these data, which company do you think won the lawsuit?