The APT itself does not provide guidance concerning the factors that one might expect to determine risk premiums. How should researchers decide which factors to investigate? Why, for example, is industrial production a reasonable factor to test for a risk premium?

Q: For what reason might a traditional NPV (net present value) analysis not be an appropriate means for…

A: Flexible manufacturing systems are a gathering of numerically worked machines associated with a…

Q: An analyst wanting to assess the downside risk of an alternative investment and is considering the…

A: Downside risk is a statistical measure that defines the probability of potential loss from a fall in…

Q: Explain the difference between systematic and unsystematic risk. Also explain why one of these types…

A: Financial markets are full of financial risks because these markets are related to the trade of…

Q: Which of the following risks can be eliminated through diversification? a. Systematic risk b.…

A: Idiosyncratic risk is a risk for a particular investment or company. It is also called unsystematic…

Q: risk-taker (likes to take risks) type of investor prefer equities over fixed income?

A: Most of investors invest in the equity and like to take high risk and would invest in stock market.

Q: Capital Asset Pricing Model is based on certain assumptions, which have been criticized after…

A: Asset pricing is a linear function of the beta value of market return: When the market returns…

Q: An increase in the riskiness of a particular security would NOT affect: Select one: A. The risk…

A: Investors have different options to make investments, and the motive behind investments is to…

Q: What is efficient set? Explain why rational investors will never chose a portfolio below the minimum…

A: What is efficient set?  Various configurations of securities yield various degrees of returns. The…

Q: Does a greater risk imply a bad investment?

A: Risk is the degree of uncertainty about the expected return from an investment. It is the…

Q: In theory, market risk should be the only “relevant” risk. However, companies focus asmuch on…

A: Stand-alone risk: Stand-alone risk is the risk related with the anticipated project cash flow. The…

Q: Indicate why you agree with justifications to the following statements:  “An investor should be…

A: Risk are of systematic and unsystematic.

Q: The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for…

A: Introduction : In simple words, capital asset pricing model or CAPM can be understood as a valuation…

Q: What are the real risks of an adverse financial outcome, especially in the short run?

A: Risk is the important factor of investment decisions to explain the capability of an investor to…

Q: sk is the potential for an investment to generate more than one return. A security that will produce…

A: While investment there are potential risk to the investment due to which return realized vary…

Q: Indicate why you agree or disagree with justifications to the following statements: - “An investor…

A: Diversified portfolio- It refers to a portfolio of investments in which unsystematic risk or firm…

Q: Can the risk premium be negative after an investment is undertaken or before?

A: The risk premium is the extra risk-free return to require the risk of project acknowledgment. This…

Q: What does the term “risk” mean in the context of capital budgeting; to what extent can risk be…

A: Capital budgeting is a process whereby a firm or an investor evaluates all the long-term…

Q: Some financial theorists consider the variance of the distribution of expected rates of return to be…

A: The variance of expected rates of returns describes a measure of the dispersion of real/actual…

Q: Using examples, explain how firms are affected by both systematic and firm-specific risk. What is…

A: There are two types of risk systemic risk and firm specific risk.

Q: Does greater risk imply a bad investment?

A: Risk assessment is the process for identifying and assessing risks associated with achieving your…

Q: According to Peter Bernstein "When we take a risk, we are betting an outcome that will result from a…

A: Risks are the situations and conditions that have exposure to losses or damages. Risks expose…

Q: omparing Value at Risk (VAR) and Expected Shortfall (ES), which is preferred by regulators for…

A: VAR that is value at risk and another is ES expected shortfall these are two methods to measure the…

Q: Hedging is a risk management strategy that is used in limiting or offsetting probability of loss…

A: Financial risk managers analyse the market trend and accordingly take financial decisions. Roles and…

Q: Even if behavioral biases do not affect equilibrium asset prices, why might it still be important…

A: Answer: There exist two reasons why the behavioral biases do not impact equilibrium asset prices.…

Q: If the assumptions underlying the CAPM hold, then an implication from the model is that: A)…

A: The CAPM shows the relationship between the Systematic risk and the return expected by the…

Q: If we are speaking about the CAPM model and undiversifiable risks.    Then what is meant by…

A: CAPM model The Capital asset pricing model (CAPM) refers to an idea that describes the systematic…

Q: Does GAAP distinguish between fair values that are readily determinable from current market prices…

A: Generally Accepted Accounting Principles (GAAP):  A set of accounting principles, practices and…

Q: The market compensates investors for accepting which type(s) of risk? O None of the listed…

A: Risk refers to the level of uncertainty in returns that an investor expects while making…

Q: A financial risk is not possible to evaluate with Select one from the following options. mean value…

A: Financial risk is the risk or probability of loss made on an investment. There are various inputs…

Q: Market risk is referred to as:   systematic risk. total risk. diversifiable risk. asset specific…

A: Answer 1. Market risk is referred to as? Market Risk: When an investor might lose money because of…

Q: What is investor overreaction? Which behavioral bias is primarily responsible for this effect, and…

A: Before going to give solution we need to know about some basic terms like investors. Investor is the…

Q: Define and explain the agency problem in terms of differences in ability to diversify risk by…

A: Agency problem occurs when there is a conflict of interest when manager is in dilemma to serve the…

Q: What is risk? Why must risk as well as return be considered by the financial manager who is…

A: Risk is associated with every business it is one of the important functions of the management to…

Q: Explain if the operational risk is considered a risk or uncertainty? Why? If it is a risk, how can…

A: Operational Loss:   The risk involved in failures of Man, Machine, Material, and Methods during…

Q: identify the assumptions underlying the interest coverage ratio appropriate measure for analyzing…

A: The interest coverage ratio is a debt ratio and profitability ratio used only to calculate how…

Q: What is idiosyncratic risk? How does it differ from market risk?

A: Idiosyncratic risk or unsystematic risk or specific risk is that risk which belongs to specific…

Q: What are the similarities and differences between the CML and SML as models of the risk return…

A: CML is an abbreviation for Capital Market Line and SML is an abbreviation for Security Market Line.…

Q: In theory, market risk should be the only “relevant” risk. However, companies focus as much on…

A: Market Risk is the risk that may create a loss on the financial assets or investments due to…

Q: The distinction between “pure risk” and “speculative risk” is important because only pure risks are…

A: “Fundamental risks” are those risks which affect a large segment of companies. But the risks which…

Q: How important is risk to returns and what are the key elements that must be analyzed in this regard…

A: Risk: The Cambridge dictionary gives one of the meanings of the word "risk" as:  "to do something…

Q: Which of the following Incoterms (EXW, FCA, DPU, DAP) are in favor of the buyer in terms of risk?…

A: FOLLOWING INCOTERMS- EXW -EX WORKS FCA-FREE CARRIER DPU-DELIVERED AT PLACE UNLOADED DAP-DELIVERED AT…