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What are the two types of Financial Risk? What is the risk-return tradeoff? ‘
answers should not exceed 150 words”.
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- Consider the following information (Assume that Security M and Security N are in the same financial market): Standard Deviation BetaSecurity M 20% 1.25Security N 30% 0.80 Which security has more total risk? Group of answer choices Security M Security N EqualWhat does WRF = -0.50 mean? Group of answer choices The investor can borrow money at the risk-free rate. The investor can lend money at the current market rate. The investor can borrow money at the current market rate. The investor can borrow money at the prime rate of interest. The investor can lend money at the prime rate of interest.Consider the following information (Assume that Security M and Security N are in the same financial market): Standard Deviation BetaSecurity M 20% 1.25Security N 30% 0.80 Which security should have higher expected return? Group of answer choices Security M Security N Equal
- What are the two types of Financial Risk? What is the risk-return tradeoff?Which one of the following is the formula that explains the relationship between the expected returnon a security and the level of that security's systematic risk?Select one:a. Time value of money equationb. Unsystematic risk equationc. Expected risk formulad. Market performance equatione. Capital asset pricing modelConsider the following information (Assume that Security M and Security N are in the same financial market and the market is efficient): Standard Deviation BetaSecurity M 20% 1.25Security N 30% 0.80 Which security has more systematic risk? Group of answer choices Security M Security N Equal
- (a) What is CAPM and what purposes does it serve in finance in general, and in investments in particular? Discuss (b) Outline and explain the main assumptions of CAPM. What limitations do these place on its practical application? Explain (c)The risk premium of the market portfolio is 9 %, the risk free rate is 5 % and the beta estimate for AELZ is β = 1.3. What is the risk premium? What is the expected rate of return?Assume that the expected rates of return and the beta coefficients of the alternatives supplied by an independent analyst are as follows: Security Estimated rate of returns Beta Nescom 5% 1.5 Market 4 1 Pk_Steel 3.5 0.75 T_Bills 3 0 Nawab 1 -0.6 What is a beta coefficient, and how are betas used in risk analysis? Do the expected returns appear to be related to each alternative’s market risk? Is it possible to choose among the alternatives on the basis of the information developed thus far?How to set-up this problem? Refer to the following example for part i) Risk-free rate of return = 3% Market return (or market portfolio's rate of return) = 10% IBM stock's beta = 1.2 Then, based on the CAPM (capital asset pricing model), IBM stock's required rate of return (or minimum acceptable return or fair rate of return) = risk-free return + beta*(market return minus risk-free return) = 3% + 1.2*(10% - 3%) = 11.4% Also, the market risk premium (or market portfolio's risk premium) = market return minus risk-free return = 10% - 3% = 7% HERE IS THE QUESTION i) suppose that a stock's beta is 0.7. If the risk-free rate of return is 4% and the market risk premium is 8%, what is the stock's required rate of return?
- In a CAPM world, what do you need to know in order to estimate an asset's expected return? Group of answer choices The risk free rate, the market risk premium, and the asset's standard deviation The risk free rate, the market risk premium, and the asset's beta The corporate bond rate, the expected return on the S&P 500 and the asset's Beta Market sentiment, historical stock returns and the risk free rateSuppose the CAPM holds. You know that the average investor has a degree of risk aversion of 4.4. The current risk-free rate is 2.2%, inflation is estimated at 1.6%, and the volatility of the market is 14%. What is the market risk premium?If the return on the risk-free asset is 2.25% (Rf = 2.25%) and the market return is 6.50% (Rm = 6.50%), what is the beta of Bank of America, BAC, if it has had a return of 9.14%? You must show all counts.
