1. If news comes to the market that suggested that the world stock prices will encounter less variability (variance) for the coming years than in the past, what would this mean for an owner of a portfolio which is mostly composed of call and put options? A. This is great news less variability is less risk, which will help portfolio return B. It is unclear if this news will be beneficial or harmful to the portfolio C. This will have no effect on the portfolio as it is immunized from volatility. D. This will be bad news for the portfolio as it has many options within it and option values are higher when volatility is higher. The answer is D, as options increase in value with greater volatility and with less volatility the portfolio will surely be worthless money. O This is great news less variability is less risk, which will help portfolio return O It is unclear if this news will be beneficial or harmful to the portfolio O This will have no effect on the portfolio as it is immunized from volatility. O This will be bad news for the portfolio as it has many options within it and option values are higher when volatility is higher.

1. If news comes to the market that suggested that the world stock prices will encounter less variability (variance) for the coming years than in the past, what would this mean for an owner of a portfolio which is mostly composed of call and put options? A. This is great news less variability is less risk, which will help portfolio return B. It is unclear if this news will be beneficial or harmful to the portfolio C. This will have no effect on the portfolio as it is immunized from volatility. D. This will be bad news for the portfolio as it has many options within it and option values are higher when volatility is higher. The answer is D, as options increase in value with greater volatility and with less volatility the portfolio will surely be worthless money. O This is great news less variability is less risk, which will help portfolio return O It is unclear if this news will be beneficial or harmful to the portfolio O This will have no effect on the portfolio as it is immunized from volatility. O This will be bad news for the portfolio as it has many options within it and option values are higher when volatility is higher.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Say stocks of firms which change their logo in a given year tend to outperform (have higher abnormal returns) the stocks of firms which don't change their logos for the following year. If markets are efficient and you used the correct model for expected returns in your analysis, what must be true about firms that change their logos relative to firms that don't change their logos? Firms that change their logos are more exposed to risk than firms that don't change their logos. Firms that change their logos are equally exposed to risk as firms that don't change their logos. Firms that change their logos are less exposed to risk than firms that don't change their logos. O We can't make any of the above statements
You buy a stock from the capital market. If the capital market is semi-strong efficient, which of the following statements is NOT correct? a. You cannot earn any abnormal returns above the required return by trading on public information. b. Past stock prices can be used to predict future stock prices. c. The technical analysis of publicly available information will not lead to any abnormal returns. d. The stock is fairly priced. e. Stock prices reflect all publicly available information.
If a stock's Beta is negative, that suggests that... (choose the single best response) Group of answer choices None of these is true. The stock's returns have been consistently negative recently. No investors would want to buy the stock. Its returns are negatively correlated with the market. The stock's CAPM expected return is negative.
Correct answer needed. Explain also.
Questionn 1- Select the incorrect statement about the optimal portfolio weights in the SIM from the following: a. When short sales are not allowed, the investor will hold more assets in her portfolio than when short sales are allowed. b. When the single index is tradeable, securities with negative will be shorted. c. When the single index is tradeable, securities with higher (given everything else constant) are more desirable. d. The investor's portfolio with no short sales is less desirable than the portfolio with short sales.
Which of the following(s) would be ways to reject the CAPM? a showing that there exist a stock with zero beta with the market earns an expected return higher than the risk free rate b showing that there exist a stock that earns higher expected return than the market c Showing that a portfolio consistently generates a negative alpha d Showing that a certain factor predicts expected return even after controlling for market beta
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. Required: a) Being an investor, critically analyse the conditions of undervalued and overvalued stocks
No matter how the stock price fluctuates, as long as it can provide a positive return, the risk of investing in stocks is low.If the concept of standard deviation is applied, is this true or false?
Based on the CAPM model, a stock with a negative beta has which of the following characteristics? A. An expected return less than zero. B. An expected return equal to the risk-free rate. C. Since these are so rare, the CAPM model does not account for negative beta stocks. D. An expected return less than the risk-free rate.
Which of the following statements is most correct? Why?* a. If a market is weak-form efficient, this means that prices rapidly reflect all available public information. b. If a market is weak-form efficient, this means that you can expect to beat the market by using technical analysis that relies on the charting of past prices. c. If a market is strong-form efficient, this means that all stocks should have the same expected return. d. All of the statements above are correct. c. None of the statements above is correct.
Stock A has more systematic risk than stock B, stock B has more unsystematic risk than stock A, and it is unclear which stock (A or B) has more total risk. Both stock A and stock B have more systematic risk than the market. Which of the following assertions is most consistent with finance theory? Stock B would have a higher expected return than stock A and stock A would have a higher expected return than the market Stock A would have a higher expected return than stock B and stock A would have a higher expected return than the market Stock B would have a higher expected return than stock A and the market would have a higher expected return than stock A Stock A would have a higher expected return than stock B and the market would have a higher expected return than stock A Because it is unclear which stock (A or B) has more total risk, it is unclear which stock (A or B) would have a higher expected return

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