An investor who wants and needs to earn a higher rate of return could attempt to do so by: both taking more financial risk and increasing the liquidity of the asset. taking more financial risk. requiring a high degree of marketability. increasing the liquidity of the asset.
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- 65) Mike Piazza is asking you to tell him about the Capital Asset Pricing Model (CAPM). What will you tell him? a) CAPM shows the expected return for a particular asset b) CAPM incorporates the pure time value of money c) CAPM explains the reward for bearing systematic risk d) CAPM alerts you to the amount of systematic risk of a particular security e) All of the aboveFinancial advisors generally recommend that their clients allocate more to higher risk–return asset classes (like equities) if their investment horizons are long. Is this advice consistent with the basic M-V model? Does adding a shortfall constraint to the M-V model make a difference? If so, how? If not, why not? Assuming investment opportunities change over time, what type of asset return behavior would justify this advice within the M-V framework?You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. If the discount rate decreases the it would lower the calculated value of the investment. Group of answer choices True False
- Describe an investment strategy that tries to grow money. You can only use for the description terms like such as day trading, short term and long term investing, risk- averse, risk tolerant etc.Which of the following decision criteria is the easiest to use and very popular among investors? O Payback period. O Internal rate of return. O Average accounting return. Net present value. O Discounted return on investment.Current Attempt in Progress Describe how investing in more than one asset can reduce risk through diversification. B I U T₂ T² T = = || E
- Which of the following investment strategies involves generating a higher expected rate of return through increasing risk? a. Leverage b. Value at risk c. Diversifying d. Hedging riskExplain the following: 1. The principle of gearing 2. Why debt is cheaper than equity 3. What the effect will be on the risk if more debt than equity is used as a source of financeBenefits of diversification. What is the expected return of investing in asset M alone?
- Investors require a _____ return as compensation for taking ____ risk. A) higher, margin B) higher, more C) higher, convexity D) lower, margin E) lower, more F) lower, convexityAs the level of risk increases, the corresponding cost of capital (i.e. the return) must _____________________ . a) go up b) go down c) stay the same.Suppose that the price of an asset equals its fundamentalvalue. What behavioral features might then ensure that investors continue totrade? Answer this question specifically in the context of the models that havebeen taught in your course.