When a firm invests in money market instruments, it is taking _______ and should expect __________. Question 17 options: 1) high risk, high returns 2) high risk, low returns 3) low risk, low returns 4) low risk, high returns
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- When a firm invests in money market instruments, it is taking _______ and should expect __________. Question 6 options: 1) high risk, high returns 2) high risk, low returns 3) low risk, low returns 4) low risk, high returnsThe calculation of an investor's Risk Aversion (A) requires us to look at that individual investor's historic behavior in his/her investing history. Why is Risk Aversion also called "price of risk"? Group of answer choices Risk Aversion measures the risk premium that the investor has required for the Capital Market Line Risk Aversion is determined by the excess return over the risk-free asset, as required by the investor Risk Aversion measures the difference in returns required by the investor in the Capital Allocation Line versus the Capital Market Line Risk Aversion measures the amount of return that the investor has required for each unit of risk taken None of the above(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?
- Derive CAPM and explain the concept of systematic risk. Explain the notion of geometric Brownian motion and hence derive Ito’s lemma. Narrate how inflation impacts present value of cash flow. What do you mean by ‘beauty contest’ and discuss its impact on investment decision of investors in stock market.1. Which of the following statements are true?a. The value of any investment is based on the cash flows it is expected to generate in the future.b. Investors are not generally risk averse.c. Uncertain cash flows are preferred to certain cash flows.d. All of the above are true.e. None of the above are true. 2. A basic knowledge of finance will help you with your personal investments by helping you understanda. how to accurately predict changes in the short-term interest rates.b. how to determine the optimal dividend policy for each firm.c. how to determine which technology is most likely to be accepted by consumers.d. how to review companies and industries to determine their prospects for future growth and therisk inherent in those companies and industries.e. how to predict the growth in sales for the firm. 3. Which of the following events would make it more likely that a company would choose to call itsoutstanding callable bonds?a.A reduction in market interest rates.b.The company's…What 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.
- What does the capital asset pricing model (CAPM) calculate? a. The expected rate of return on an individual stock with respect to the risk-free rate of return b. The expected rate of return of an individual stock based on its overall risk c. The expected rate of return of an individual stock with respect to its market risk only d. The expected rate of return of an individual stock reflecting its financial risk Clear my choiceWhy a risk taker (likes to take risk) type of investor prefer equities over fixed income?an investment market, understanding the concept of undervalued and overvalued stocks is very important. Hence, a prudent investor must have good knowledge about Beta, Market Rate of Return and Risk Free Rate of Return. b) Give a graphical example to present the positioning of: Systematic risk Risk free rate of return Market rate of return, and Risk premium.
- 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?Q1 .In an investment market , understanding the concept of undervalued and overvalued stock is very important . hence , a prudent investor must have good knowledge about beta, market rate of return and risk free rate of return b) Give a graphical example to present the positioning of- systematic risk- risk free rate of return - mareket rate of return- risk premiumHow should I manage my portfolio's risk in the current financial environment (Ex: COVID-19, inflation, global and political uncertainty). Should my money stay in cash or bonds? Should I be taking more risk with equities?