ith correct answer. Interest rate risk is the potential for investment (....loss/gain..........). that result from a change in the interest rates. If interest rate (rise/fall)..., for instance, the val
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Interest rate risk is the potential for investment (....loss/gain..........). that result from a change in the interest rates. If interest rate (rise/fall)..., for instance, the value of the bond or fixed-income instrument will decline.
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- An increase in the riskiness of financial securities results in a_______ in the supply of loanable funds and hence shift in the supply curve to the_______ O Decrease, leftO Decrease, rightO Increase, left O Increase, rightIf the credit quality of the issuer falls sharply, what is your main concern? a.The share price. b.The volatility of the underlying c.The default risk. d.A rise in risk free interest rates Give typing answer with explanation and conclusionInterest rate risk is the potential for investment ( ) that result from a change in interest rates. If interest rates ( ) , for instance, the value of a bond or fixed-income instrument will decline.
- Duration is important in understanding a fixed income portfolio because A. it is used in the capital asset pricing model B. it measures the interest rate sensitivity of a bonds value C. It measures the correlation with a bank's stock price D. It causes contagionThe risk premium for an investment: Answer a. Is negative for U.S. Treasury Securities b. Is zero (0) for risk-averse investors c. Increases with risk d. Is a fixed amount added to the risk-free return, regardless of the level of riskGive typing answer with explanation and conclusion The market risk premium: Decreases with the risk aversion of investors in the market Increases with the risk aversion of investors in the market Decreases with the egree of risk of the average potential risky investment Could be negative
- Unsystematic risk is * a.the risk associated with movements in securities prices B.higher when interest rates rise C.the risk of loss of purchasing power D.reduced through diversificationPlease explain it why choosing option correct and wrong # Which of the following best describes interest rate risk? The risk that credit ratings will change, affecting the value of assets and liabilities The risk that banks will not be able to meet their liquidity requirements None of the above The risk that interest rates will rise or fall, affecting the value of assets and liabilitiesQUESTION Hedging is a risk management strategy that is used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies. REQUIRED: Discuss the importance of hedging to the financial risk manager Are there any downside to hedging?
- 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 assumedWhich of the following statements is false? A. Banks have high levels of liquidity assets and stable funding since the financial crisis. B. Compared with bonds with short-term duration, bonds with long-term duration have uncertainty regarding future creditworthiness. C. Expected loss can decrease with an increase in a bond’s recovery rate. D. Macaulay duration is calculated as modified duration divided by one plus the bond’s yield to maturity.In considering the market-based approach to measuring credit risk, choose all statements that are correct: a) The Merton model is useful to price defaultable debt as long as the underlying company has exchange-traded stocks. b) In the Merton model, the only unknown parameter is the volatility of firm equity c) In the Merton model, the only unknown parameter is the volatility of firm value, which comprises equity and debt. d) CDS spreads cannot be used to imply default probabilities because recovery rates are variable