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For the investors, the more steeper slope of indifference curve shows the more
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- The greater the variability of the possible returns on an investment, _________. a. the lesser the expected return b. the lower the standard deviation of the investment c. the higher the actual return on the investment d. the riskier the investment e. the lower the beta of the investmentThe higher a security's risk, the higher the return investors demand, and thus the less they are willing to pay for the investment. What do you understand from the statement mentioned above? Explain with necessary numerical data, and illustrate by means of a chart.Answer whether each of the following statements is correct and explain your argument. \ (a) According to CAPM, the expected return of a risky asset is larger than the risk free rate. (b) According to CAPM, the expected return of a risky asset increases with its variance. (c) According to the separation property, the optimal risky portfolio for an investor dependson the investor’s personal preference. (d) A less risk-averse investor has a steeper indifference curve for the utility function.
- If the dispersion around a security's return is larger * the standard deviation is smaller the expected return is smaller the stock's price is higher the security's risk is higherThe investment with the higher payback period is better. Select one: True False(a) According to CAPM, the expected return of a risky asset is larger than the risk free rate. (b) According to CAPM, the expected return of a risky asset increases with its variance. (c) According to the separation property, the optimal risky portfolio for an investor dependson the investor’s personal preference. (d) A less risk-averse investor has a steeper indifference curve for the utility function.
- What must be true about the sign of the risk aversion coefficient, A, for a risk lover? Draw the indifference curve for a utility level of .05 for a risk lover.The lower the standard deviation of returns on a security, the _____ the expected rate of return and the _____ the risk. Multiple Choice lower; lower lower; higher higher; lower higher; higherWhy do some investors prefer to use Lower Partial Standard Deviations(LPSD) as compared to the standard deviation?
- a. Another of Matilda’s colleagues is looking at the yield curve and asks for an explanation as to why it has the current shape. Matilda explains using the two forms of the “biased” expectations theory. Define the two forms, and explain why they are referred to as “biased”.One important assumption behind portfolio theory is that investors are “mean-variance maximizers.” What is the meaning of this? Explain why this assumption is important in the delineation of the efficient frontier.What happens to the SML graph when risk aversion increasesor decreases?