The risk-adjusted discount rate reduces investment. True or false?

Q: How is the risk-adjusted discount-rate approach more commonly practiced in the real world?

A: Risk adjusted discount rate approach is an approach which is used in assessment of various long-term…

Q: Using a payback period rule tends to bias investors toward Select one: a. riskier investments. b.…

A: Payback period: This method is used to calculate how many years a project will take to recover its…

Q: How do margin trades magnify both the upside potential and the downside risk of an investment…

A: Margin trades refer to the trades in which an investor does not need to pay the full amount to take…

Q: w does expected shortfal

A: Introduction : Value at risk (VaR) can be understood as the metric that measures the magnitude of…

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: One way to offset a higher probability of default would be to have high quality collateral thus…

A: Default refers to failure of an obligation that is generally related to repayment of a loan or funds…

Q: What assumption about risk-adjusted techniques for measuring performance poses a potential problem?…

A: RISK ADJUSTED TECHNIQUES  Investors want to look beyond performance when evaluating portfolios…

Q: When market rates of interest rise after a fixed-rate security is purchased, the value of the…

A: Held-to-maturity security:   The debt security which are held by an investor with an intention to…

Q: why buying on margin is less riskier than short selling?

A: Trading on margin is a process of borrowing funds from a brokerage firm in order to execute trade…

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: Does greater risk imply a bad investment?

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

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: What makes the risk-adjusted discount rate approach appealing?

A: Answer: The approximation of the present cash value for high risk assets is called adjusted discount…

Q: What discount rate is used in a lessor’s NPV analysis?

A: Weighted average cost of capital is used as discount rate in Lessor's NPV analysis.

Q: What strategies are available to eliminate timing problems in investments? Explain Briefly

A: Introduction to Investments  Investment is referred to as the asset which is created with the…

Q: Describe the process of using the risk-adjusted discount rateto calculate the net present value?

A: Net present value (NPV) is the excess of present value of cash inflows over the present value of…

Q: How is it possible to achieve a higher rate of return without significantlyincreasing risk?

A: As we all learnes till now that higher the risk provides higher return and if we want the high…

Q: Explain the Contrarian Investing Strategy?

A: An investment strategy is a procedure to select the best investment portfolio that gives the maximum…

Q: What kind of investment is considered to be risk-free?

A: A risk-free investment is an investment that has a minimum or no fluctuation from the expected…

Q: The modified internal rate of return (MMIR) is the discount rate that forces the _____.

A: Explanation: Modified internal rate of return can be better understood from the below formula, where…

Q: When npv is negative, the discount rate is greater than the actual return on investment. A.…

A: Net present value is the method used in capital budgeting to analyse various investments, projects,…

Q: o you think a person would opt to use the Payback Period Method instead of the Net Present Value or…

A: Given information : . NPV refers to the difference between the sum of the present value of expected…

Q: risk-adjusted discount rate has

A: In financial terms, risk can be defined as the possibility that the real profits from an outcome or…

Q: The interest rate is the IRR for the mixed investment. True or false?

A: Project Balance (PB) is the amount of investment that is made into a project at any given period of…

Q: What makes the risk-adjusted discount rate approach appealing in practical application?

A: Answer: The discount rate may be changed to offset the risk involved in a project in order to…

Q: Why is the default F risk in a CMBS offering given more attention?

A: A default risk is the likelihood that the guarantor of a bond won't have the option to reimburse the…

Q: Speculation tends to have a high risk and high rate of return compared to investment Select one: O…

A: The main target in both the cases are making profit, however there are major differences between the…

Q: INTEREST RATE RISK  In the context of the repricing gap model, what is the spread effect? How does…

A: The repricing gap model is based on the consideration that a bank's exposure to interest rate risk…

Q: What is meant by the phrase natural hedging againstexchange rate risk?

A: Hedging is a mechanism that is used to eliminate or minimize the risk of loss that is associated…

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: Is it true that the the wider the risk premium, the lower the price of a expected future cash flow?

A: Risk premium is the return the stock gives over the risk free asset. risk premium = Rs-Rf Wider risk…

Q: Increasing leverage lowers the firm’s risk position, yielding the risk-return trade-off. True or…

A: Risk return trade off: return increases as the risk increases

Q: NOT right for the buy-and-hold investment strategy?

A: Strategy refers to the plan which is followed by the managers to achieve the goals of an…

Q: Does a risky investment always equal a big payoff and vice versa?

A: Risky investments are played by risky people only. Lets take an example for better understanding. Mr…

Q: advantages of negative interest rate policies?

A: There are pros and cons of negative interest rate policies. In fact, in my opinion negative interest…

Q: Why short selling are risky than buying margin?

A: Short selling is riskier than buying on margin.   Short selling is borrowing shares from your broker…

Q: When performing present worth analysis, a future worth taking inflation into consideration tends to…

A: Present worth is computed by discounting the future cash flows from the security or the project.

Q: What is the importance of market risk premium?

A: Market risk premium Variance of the market return and the risk-free rate. It depicts the equity…

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.