liquidity risk?  Define briefly with an appropriate example

Q: Describe Asset/Liability Models and explain why it is better than Value-at-Risk Models for Portfolio…

A: The process through the use of assets and liabilities are managed in such a way that the risk of…

Q: Differentiate between price risk and reinvestment risk.

A: Price risk is the risk of decline of the price of the investment or an asset after the underlying…

Q: Define counterparty risk

A: Counterparty risk means two parties enter into a contract to meet their specific obligations on a…

Q: question is related to FINANCIAL RISK MANAGEMENT

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Explain the logic of the liquidity premium theory of the term structure

A: Investors prefer to have the securities which are highly liquid and have short term maturity period…

Q: Portfolio risk is comprised of risk, risk. Select one: a. diversifiable; plus unsystematic

A: Risk is the amount of money lost from an investment. Risks are of two types. 1. Systematic risk 2.…

Q: Define market risk

A: Market risk is the risk of an investment due to over all volatility in the market returns due to…

Q: Differentiate between (a) stand-alone risk and(b) risk in a portfolio context

A: Investors can categorize the risks in two types. One is diversifiable risk and other one is…

Q: Briefly explain the fundamental trade-off between risk and return.

A: Fundamental trade-off among risk and return: Higher risk is related with larger chance of advanced…

Q: What is the causes of the financial risk?

A: financial risk - financial risk is the possible danger of losing money from an investment made by…

Q: Differentiate between interest rate risk and reinvestmentrate risk.

A: The major representation of the interest rate risk is the differentiation in the bond market price…

Q: Define Liquidity Analysis?

A: Liquidity analysis is very essential as it shows the ability of the firm in paying short-term bills.…

Q: Explain the relationship between risk and return in portfolio management!

A: Risk refers to an adverse possibility of something to get happen. Risk is the possibility of loss.…

Q: Why does standalone risk differ from portfolio risk? Explain and give examples! Relates your answer…

A: While making an investment, an investor is required to thoroughly examine all types of risks and…

Q: O liquidity risk

A: Risks: Risks are the difference between the expected gains and the actual gains. Risks are core…

Q: Define the term exposure to financial risk?

A: The question is based on the concept of Financial risk and its exposure.

Q: What is the risk premium?

A: CAPM is the method of calculating the expected return on investment. The formula to calculate the…

Q: What security provides a good estimate of the real risk-free rate?

A: A Treasury bill (T-Bill) is the short-term liability of US public debt supported for 1 year or…

Q: What is risk return ratio?

A: Any susceptibility a corporation or organization has to factors that might affect profitability or…

Q: What is the importance of liquidity?

A: Introduction: Liquidity is nothing but the ability of the bank to turn money into cash and to be…

Q: Define the term s liquidity position?

A: Definition: Liquidity: Liquidity is the capability of a company to pay the short-term liabilities…

Q: Calculate and label the market risk premium

A: Security Market Line or SML is the upward sloping straight line. This line is the graphical…

Q: Define the term Risk-Adjusted Discount Rate Approach?

A: The estimation of the present value of cash for high-risk investment is known as a risk-adjusted…

Q: Explain Comparing Risk Premiums?

A: Risk premium is additional premium an investor achieves by investing in a riskier financial…

Q: Could you explain the term "financial risk" in simple terms

A: Financial risk - The risk of losing money on an investment.

Q: What is the difference between Cash Flow Risk and Interest Rate Risk? Please explain it clearly so…

A: Risk is referred to as the possibility of putting oneself or someone in unfortunate…

Q: Discuss the role of risk-free assets in the Markowitz Portfolio Theory.

A: Harry Markowitz always focused on lowering the risk and diversification in order to maximize the…

Q: Answer the following questions: a) How do you handle financial risk?

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: What is liquidity black holes?

A: Liquidity is when assets can be easily traded in the market with no compromise in the price of the…

Q: Define Arbitrage (risk-free) portfolio

A: An arbitrage portfolio is a portfolio with zero factor risk - all the factor sensitivities are equal…

Q: What is the relationship between risk and return?

A: Risk return relationship: The association among risk and return is recognized as the risk-return…

Q: Compare speculative risk and pure risk.

A: Pure Risk is the possibility where there is loss or no loss. Speculative risk  is a possibility of…

Q: What is Interest Risk and Cash Flow Risk?

A: Risk exists in all business operations and transactions however the business should take actions to…

Q: Define market risk premium

A: Market risk premium  It is defined as a variance between an expected rate of returns on the market…

Q: Explain current liabilities are riskier than long-term liabilities?

A: Liabilities:   A liability is a sum of money owed by the company towards external entities like a…

Q: How to deal with financial risk

A: Financial risk is always present in business situations but one thing we can do it that we can…

Q: Define real risk-free interest rate

A: Real Risk Free Interest Rate is a theoretical concept which refers to the required return required…

Q: escribes the relationship between risk and return.

A: Risk and return are directly related.

Q: risk with practical examples

A: Default risk is the risk that a lender takes on in the chance that a borrower will be unable to make…

Q: Briefly describe the meaning of financial risks and its major types

A: Risk can be described as the likelihood of an unexpected or negative outcome. Any act or activity…

Q: How are total risk, market risk, and diversifiable risk related?

A: There are different types of risk associated with the investment. Some can be controlled and some…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.