If a put option has a delta close to minus one-half, then the corresponding call option is likely to be.Oat-the-money or the stock price is close to the strike price.O deeply in-the-money.O None of the other answers is correct.O either deeply in-the-money or deeply out-of-the moneyO deeply out-of-the-money. Which of the following assumptions of the Black-Scholes model are often violated in empirical data?O All of the other answers are correct.O Continuously-compounded returns on the underlying asset follow a normal distribution.O The volatility of the underlying asset is constant.O There are no jumps in the price of the underlying asset.O Trading in the underlying asset is continuous.

Negative delta is negative for call option which means when the delta is close to minus one-half,…

If a put option has a delta close to minus one-half, then the corresponding call option is likely to be: Oat-the-money or the stock price is close to the strike price. O deeply in-the-money. O None of the other answers is correct. O either deeply in-the-money or deeply out-of-the money. O deeply out-of-the-money.

If a put option has a delta close to minus one-half, then the corresponding call option is likely to be: Oat-the-money or the stock price is close to the strike price. O deeply in-the-money. O None of the other answers is correct. O either deeply in-the-money or deeply out-of-the money. O deeply out-of-the-money.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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According to the CAPM, the main factor that explains the performance of an asset is given by the... Asset-specific idiosyncratic risk Systemic Risk of the asset, expressed through its BETA against the Broad Market Absolute Risk of the asset expressed by its Volatility (Standard Deviation of the Returns) None of the above
In an efficient market when asset expected returns are plotted against asset betas, then all assets would be on the security market line A. Because all assets have the same beta B. Because no assets have the same risk premium C. Because all assets have the same reward to risk ratio D. Because all assets have the same systematic risk E. Because all assets have the same average amount of systematic risk
Which of the following is not a characteristic of an efficient market? Investors can frequently make profits by predicting asset market prices that are different from intrinsic values. The market value of all securities at any one instant in time fully reflect all available information. Investors act rationally. The forces of demand and supply work to maintain that the security's market price and its intrinsic value are in equilibrium.
True or false: The CAPM states that expected returns depend on an asset’s loading on market risk. Thus, any asset with a standard deviation greater than the standard deviation of the market portfolio must have an expected return greater than the market portfolio, since it is riskier than the market. If this were not the case, no investor would be willing to hold the risky asset in their portfolio, so markets could not clear.
State whether the following statement is True or False and explain why. “The return on a risk-free asset and the return on any common stock are perfectly negatively correlated.”
What does Jensen's alpha measure? a. An investor's reward in proportion to their assumption of systematic risk b. The abnormal return of an asset, defined as the degree to which its actual return exceeds that predicted by the capital asset pricing model c. The degree to which diversifiable risk is eliminated d. How much reward an investor is getting for each unit of risk assumed
Beta calculations are subject to which of the following limitations? a. The market's rate of return varies from year to year. b. Beta is known to be erratic and unpredictable. c. Collecting rate of return data on individual assets is difficult. d. Beta is determined from historical data, and the stock's characteristics might have changed since hte measurement was performed.
Jeffrey Bruner, CFA, uses the capital asset pricing model (CAPM) to help identify mispriced securities. A consultant suggests Bruner use arbitrage pricing theory (APT) instead. In comparing CAPM and APT, the consultant makes the following arguments:a. Both the CAPM and APT require a mean-variance efficient market portfolio.b. Neither the CAPM nor the APT assumes normally distributed security returns.c. The CAPM assumes that one specific factor explains security returns but APT does not.State whether each of the consultant’s arguments is correct or incorrect. Indicate, for each incorrect argument, why the argument is incorrect.
The feature of the general version of the arbitrage pricing theory (APT) that offers the greatest potential advantage over the simple CAPM is the:a. Identification of anticipated changes in production, inflation, and term structure of interest rates as key factors explaining the risk–return relationship.b. Superior measurement of the risk-free rate of return over historical time periods.c. Variability of coefficients of sensitivity to the APT factors for a given asset over time.d. Use of several factors instead of a single market index to explain the risk–return relationship.
Intepretation of Beta: Beta measures the sensitivity of the asset's return to variation in the market return. What is meant by that it emasures the sensitiviy of asset return to variation in the market return?
Assume that CAPM does not hold and securities may earn abnormal returns. Suppose security A has a lower alpha than security B, which statement below is TRUE: Group of answer choices Security A has a lower expected return than security B Security A has a lower abnormal return than security B Security A has lower total risk than security B Security A has a lower total return than security B
Beta is defined as the: a. Amount of systematic risk in a risky asset relative to that in an average asset. b. Ratio of unsystematic risk in a risky asset relative to the systematic risk in the overall market. c. Amount of systematic risk in a risky asset relative to that of a risk-free asset. d. Ratio of the total risk in a risky asset relative to the systematic risk in the overall market. e. Slope of the security market line.