If only some investors perform security analysis while all others hold the market portfolio, would the CML still be the efficient CAL for investors who do not engage in security analysis? Explain.
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- An increase in the riskiness of a particular security would NOT affect: Select one: A. The risk premium for that security B. The premium for expected inflation C. The total required return for the security D. Investors' willingness to buy the securityConsider the following information (Assume that Security M and Security N are in the same financial market and the market is efficient): Standard Deviation BetaSecurity M 20% 1.25Security N 30% 0.80 Which security has more systematic risk? Group of answer choices Security M Security N EqualOne of the basic promises of security analysis, and in particular fundamental analysis is that A- a stock's price is based on the cash flows it has generated in the past B- market sectors and industries do not move in concert with business cycle C- all securities have an intrinsic value that their market value will approach over time D- a security's risk has relatively litthe effect on the security's return
- (I) The market price of a security at a given time is the highest value any investor puts onthe security. (II) Superior information about a security increases its value by reducing its risk.a) (I) is true, (II) is false.b) (I) is false, (II) is true.c) Both are true.d) Both are false.What type of security can be used to minimize both price risk and reinvestment riskfor an investor with a fixed investment horizon? Does this security protect the realpayoff? Explain.Which of the following is not an assumption of technical analysis? A.The security under analysis is freely traded B. Security markets are efficient C. Market trends and patterns tend to repeat themıselves
- Why would an advocate of the efficient market hypothesis believe that even if many investors exhibit the behavioral biases, security prices might still be set efficiently?According to the Random Walk hypothesis, security prices respond only to new information, which _________________. must be available yesterday must be released by an investment bank cannot be predicted must involve price or volume1. In broad terms, why is some risk diversifiable? Why are some risks nondiversifiable? Does it follow that an investor can control the level of unsystematic risk in a portfolio, but not the level of systematic risk?
- 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.What happens to the price and return of a security when investors recognize it as undervalued? Explain.Suppose you observed the following situation: Security Beta Expected Return Cooley, Inc. 1.6 19% Moyer Co. 1.2 16% What would the risk-free rate have to be if these securities are correctly priced?