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- Provide a descriptive formula for each of the following (e.g., Total risk =?+?): a. Total risk= b. Discount rate= c. Adjusted NPV=Which of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the Initial Investment? A. internal rate of return (IRR) method B. net present value (N PV) C. discounted cash flow model D. future value methodThe following data are gathered:· The real risk-free rate is 1.05%· Inflation premium is constant at 2.60%· Default risk premium is 3.50%· Maturity risk premium is 2.30%· Liquidity risk premium is 1.50%What is the risk free rate?
- What is the market risk premium (rM - rRF)? Format: 1.1%Define each of the following terms: Production opportunities; time preferences for consumption; risk; inflation Real risk-free rate of interest, r*; nominal (quoted) risk-free rate of interest, rRF Inflation premium (IP) Default risk premium (DRP) Liquidity premium (LP); maturity risk premium (MRP)Make a simple example of the following: a. Capital Gain (or Losses) b. Expected Return c. Real Return d. Risk-free Return e. Required Return f. Holding Period Return
- The expected return on the market is the risk-free rate plus the A. diversified returns B. equilibrium risk premium C. historical market return D. unsystematic returnA. Realized return B. Ex ante alpha C. Ex post alpha D. Realized beta Question 7 (MCQ) One example of a build up model is: A. A macroeconomic model B. Capital Asset Pricing Model (CAPM) C. Bond yield plus risk premium D. Fama and French modelThe expected return on the market is the risk-free rate plus the A. diversified returns B. equilibrium risk premium C. historical market return D.unsystematic return
- Q. Market rate of return is 18%, risk-free rate of return 8% and beta is 1.2 1. Calculate the required rate of return 2. Calculate risk premiumGiven a real rate of interest of 2%, an expected inflation premium of 3%, and risk premiums for investments A and B of 4% and 6%, respectively, find the following. The risk-free rate of return, rf The required returns for investments A and BAssume that the return volatility for asset 1 and 2 is 0.2 and 0.3 respectively and the return correlation is 0.7. The portfolio volatility is a) 2.5 b) 3.0 c) 3.5 d) 4