With the availability of a riskfree rate, the efficient frontier becomes O linear O curved O shaped like a letter S O less attractive by moving down and to the right O None of above
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- A change in the risk premium, E(Rm) - Rf, results in... Group of answer choices 1. A change in the vertical intercept of the Security Market Line (SML) 2. No change in the return/beta relationship. 3. A change in the horizontal intercept of the Security Market Line (SML) 4. A change in the slope of the Security Market Line (SML)Prove rigourously, "Constant relative risk aversion (CRRA) implies decreasing absolute risk aversion (DARA), but the converse is not necessarily true."On the risk assessment of stand-alone basis of asset, which of the following scenarios is correct? Using a bar graph, the returns of security HIS is more dispersed than security HER, therefore, security HER is risker. Security TIK is less risky than security TOK because the coefficient of variation of security TIK is significantly higher than TOK. The Sharpe ratio of security YIN is higher than that of security YANG. Therefore, security YANG is riskier Security ABC is riskier than Security DEF because security ABC has a higher coefficient of variation
- 1. In a flattening yield curve environment, a barbell strategy will _________ and a bullet strategy will _________. A. Underperform, underperform B. Underperform, outperform C. Outperform, outperform D. Outperform, underperform18. If one were to plot the expected returns of assets (y axis) against the systematic risk (x-axis) and construct a frontier of investments, then the indifference curves of a risk-neutral investor would: Select one or more: a. Would be straight horizontal lines b. Would be undefined and impossible to plot on such a diagram c. Would increase in utility as you go up along the y-axis d. Would be straight vertical lines e. Coincide over top the efficient frontier boundary at all points f. Would increase in utility as you go left along the x-axisThink about whether a risk-free asset should earn a risk-premium beyond the risk-free rate. Thinking about that should give you an idea of the beta for a risk-free asset. Or, look again at the CAPM equation: E(Ri)=Rf+βi[E(RM)−Rf] Given this equation, what beta sets the E(R) of the risk free asset equal to the risk-free rate? A) zero B) 0.5 C) 1.0 D) its random
- Now add the risk-free asset. What impact does this have on the efficient frontier?What happens if we wish to increase a constraint RHS value beyond the allowable increase/decrease shown in your sensitivity analysis? a.no effect on the optimal solution b.the problem should be solved again to find the new optimal solution c.there will no longer be a feasible solution for the problem. d.we can still use the dual price of the original problem to get the new optimal objective function value.The lower the standard deviation of returns on a security, the _____ the expected rate of return and the _____ the risk. Multiple Choice lower; lower lower; higher higher; lower higher; higher
- Triangular arbitrage is not a truly an arbritrage opportunity since the actual cross rate could change at any moment in such a way that the return an arbitrageur would receive becomes zero. True FalseMany decision problems have the following simple structure. A decision maker has two possible deci-sions, 1 and 2. If decision 1 is made, a sure cost of c is incurred. If decision 2 is made, there are two possibleoutcomes, with costs c1 and c2 and probabilities p and1 2 p. We assume that c1 , c , c2. The idea is thatdecision 1, the riskless decision, has a moderate cost,whereas decision 2, the risky decision, has a low costc1 or a high cost c2.a. Calculate the expected cost from the riskydecision.b. List as many scenarios as you can think of thathave this structure. (Here’s an example to get youstarted. Think of insurance, where you pay a surepremium to avoid a large possible loss.) For eachof these scenarios, indicate whether you wouldbase your decision on EMV or on expected utility.A change in the risk premium, E(Rm) - Rf, results in... a) A change in the vertical intercept of the Security Market Line (SML) b) No change in the return/beta relationship. c)A change in the horizontal intercept of the Security Market Line (SML) d)A change in the slope of the Security Market Line (SML)