FINANCE 601 ACCESS CODE (CUSTOM)
16th Edition
ISBN: 9781259867668
Author: Ross
Publisher: MCG CUSTOM
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Chapter 12, Problem 6CQ
APT In contrast to the
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The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for an individual security. Which is the relevant risk variable and why is it relevant? Why is the other risk variable not relevant?
In theory, market risk should be the only “relevant” risk. However, companies focus asmuch on stand-alone risk as on market risk. What are the reasons for the focus on standalonerisk?
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?
Chapter 12 Solutions
FINANCE 601 ACCESS CODE (CUSTOM)
Ch. 12 - Prob. 1CQCh. 12 - Prob. 2CQCh. 12 - Prob. 3CQCh. 12 - Prob. 4CQCh. 12 - Market Model versus APT What are the differences...Ch. 12 - APT In contrast to the CAPM, the APT does not...Ch. 12 - CAPM versus APT What is the relationship between...Ch. 12 - Prob. 8CQCh. 12 - Data Mining What is data mining? Why might it...Ch. 12 - Prob. 10CQ
Ch. 12 - Prob. 1QPCh. 12 - Factor Models Suppose a three-factor model is...Ch. 12 - Prob. 3QPCh. 12 - Multifactor Models Suppose stock returns can be...Ch. 12 - Prob. 5QPCh. 12 - Market Model The following three stocks are...Ch. 12 - Prob. 7QPCh. 12 - Prob. 8QPCh. 12 - APT Assume that the following market model...Ch. 12 - Prob. 10QP
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- What should a company do when the cost of eliminating the conditions that create an IT risk exceeds the potential losses that may occur? a. Accept the risk b. Reduce the risk c. Avoid risk d. Transfer the riskarrow_forwardThe systematic risk principle states that the expected return on a risky asset depends only on which one of the following? Unsystematic risk Market risk Diversifiable riskarrow_forwardWhat are some actions that companies can take tominimize or reduce risk exposures?arrow_forward
- A3) Finance Which one is a financial risk? Select one: a. Uncertainty about demand b. uncertainty about cost d. None of the abovearrow_forwardWhich of the following Incoterms (EXW, FCA, DPU, DAP) are in favor of the buyer in terms of risk? Which are in favor of the seller in terms of risk?arrow_forwardExplain the difference between financial risk andbusiness risk.arrow_forward
- According to the CAPM, the main factor that explains the performance of an asset is given by the... Asset-specific idiosyncratic risk Systemic Risk of the asset, expressed through its BETA against the Broad Market Absolute Risk of the asset expressed by its Volatility (Standard Deviation of the Returns) None of the abovearrow_forwardPlease select the risk that affect only a single company? market risks. specific risks. systematic risks. risk premiums.arrow_forwardThe Fama-French 3-factor model is a multi-factor models that includes two additional risk factors beyond the market risk factor in the CAPM model. These additional factors account for__________. A) Firm-specific risk that the CAPM does not measure. B) Sensitivities of an asset’s return related to its size and its ratio of book-to-market value. C) A and B are both correctarrow_forward
- If we are speaking about the CAPM model and undiversifiable risks. Then what is meant by returns which are not captured by the market return.arrow_forward(a) Define risk-free asset (b) Is the following statement true or false. Briefly explain your answer. "There can not be a universally risk-free asset for all investors."arrow_forwardHow might you mitigate the risks that are mentioned? Market, Liquidity, and Operational.arrow_forward
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