If the index model is valid, would be helpful in determining the covariance between assets GM and GE. O None of the options are correct. OBGE O all of the options O OM O BGM
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- 4) Assume the index model is valid, what inputs will be required to determine covariance between two assets? A) βk B) βL C) σM D) all of the options E) None of the options are correct. Choose the correct answer with justificationwhich one is correct please confirm? Q2: "An increase in the volatility of the underlying asset, all other things held constant, will ______ the option premium." increase decrease increase or decrease Not enough information is given.H3. Which of the following statements are true assuming that all assets satisfy CAPM? a) Low-beta stocks always have lower return standard deviation than high beta stocks. b) All the assets have the same expected return. c) Two assets with different beta can have same expected returns. d) Assets cannot earn expected returns above the CAPM-implied expected return. Please explain the correct answers and why the other ones are incorrect Explain with details
- If the internal rate of return (IRR) of a well-behaved investment alternative is equal to MARR, which of the following statements about the other measures of worth for this alternative must be true? i. PW = 0 ii. AW = 0. Solve, a. I onlyb. II only c. Neither I nor II d. Both I and II.Consider the following information (Assume that Security M and Security N are in the same financial market): Standard Deviation BetaSecurity M 20% 1.25Security N 30% 0.80 Which security should have higher expected return? Group of answer choices Security M Security N Equal2. The Multi-factor Arbitrage Pricing Theory Model (APT) may be valid at the same time as the Capital Asset Pricing Model (CAPM) and for the same market... [choose the answer which best completes the sentence] A. depending on whether information other than market prices is considered B. never C. only if Arbitrage is possible D. always
- 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.Consider the following information (Assume that Security M and Security N are in the same financial market): Standard Deviation BetaSecurity M 20% 1.25Security N 30% 0.80 Which security has more total risk? Group of answer choices Security M Security N EqualWhich of the following statements is CORRECT? a. Lower beta stocks have higher required returns. b. A stock's beta indicates its diversifiable risk. c. Diversifiable risk cannot be completely diversified away. d. Two securities with the same stand-alone risk must have the same betas. e. The slope of the security market line is equal to the market risk premium.
- Which of the following is true with Primary Market? Select one: a. None of the options b. Provides liquidity for instruments which are already issued by companies c. Increases risk d. Needs fixed place for trading e. Deals with new issues made by companies for the first timeWhich 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.This is a general question and no specific numbers are required: You have two stocks and you have calculated the return on the relevant riskless assets for this market. What would the reasons be for choosing one asset over the other and explain why?