Answered: Market li

Business

Accounting

Market li

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 9MC: What is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write...

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Concept explainers

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.

Question

Market liquidity risk is reflected in the size of the bid-ask spreads.

Select one:

True

False

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It measures the sensitivity of the return of a security to changes in the return of a common index taken to be a proxy of the market portfolio. A. alpha B. sharpe index C. treynor index D. Beta
What is the Security Market Line (SML)? How isbeta related to a stock’s required rate of return?
Which of the following is TRUE? To construct a capital market line, we use expected return as y-axis and beta as x-axis On the capital market line debt securities are located to the right of the market portfolio To construct a security market line, we use expected return as y-axis and beta as x-axis Market portfolio lays at an intersection of the average indifference curve of a risk-averse investor and the efficient portfolio
Considering the attached set of securities and portfolio returns: Find the combination of the weights that minimizes CV of the portfolio. How does the CV of the optimal portfolio compare with the CVs of its constituents?
When forming a portfolio, investors need to consider liquidity of the financial security. A famous financial economist Maureen O’Hara emphasizes how difficult it is to define liquidity. One of the common measures of liquidity is bid-ask spread (a difference between bid and ask price). Why do you think bid-ask spread is considered as a measure of liquidity? How else can you measure a stock’s liquidity?
The slope of the security market line is the: Group of answer choices reward-to-risk ratio portfolio weight beta coefficient risk-free interest rate market risk premium
The security market line depicts:a. A security’s expected return as a function of its systematic risk.b. The market portfolio as the optimal portfolio of risky securities.c. The relationship between a security’s return and the return on an index.d. The complete portfolio as a combination of the market portfolio and the risk-free asset.
Stock market analyst. Explain how the relationship between risk and return is maintained using different models
The security market line depicts: a. Expected return as a function of systematic risk (indicated by beta) b. The market portfolio as the optimal portfolio of risky assets c. The relationship between a security’s return and the return on the index d. Portfolio combinations of the market portfolio and the risk-free asset e. Expected return as a function of volatility
Portfolio return is a linear combination of individual securities whereas portfolio risk is nonlinear?
Explain in your own words what dynamic hedging is, and how a trader could profit by dynamically hedging an option if they have a forecast of volatility that is different to implied volatility.
Which of the following statements is true regarding the optimal risky portfolio: It is designated by the point of tangency with iso-utility curve and the capital allocation line. It is designated by the point of highest Sharpe ratio in the opportunity set. It is designed by the point of tangency with the opportunity set and the securities market line. This portfolio gives the highest standard deviation risk per unit of risk premium in the opportunity set.