Evaluate the following statement: If the financial market is frictionless and complete, the asset with higher expected return also exhibits higher return volatility (i.e., standard deviation of returns).
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- The Capital Asset Pricing Model (CAPM) asserts that an asset’s expected return is equal to the risk-free rate plus a risk premium for: a. Volatility b. Systematic risk c. Non-systematic risk d. Diversification e. Marginal utility of consumptionWhat does Jensen's alpha measure? a. An investor's reward in proportion to their assumption of systematic risk b. The abnormal return of an asset, defined as the degree to which its actual return exceeds that predicted by the capital asset pricing model c. The degree to which diversifiable risk is eliminated d. How much reward an investor is getting for each unit of risk assumed1. Define the components of holding period return. Can any of these components be negative? 2. How do you understand an investment risk and what statistic tools can be used to measure it?
- If a financial asset has an expected return that is greater than what is necessary to compensate for its risk, what will bring the return back in line with equilibrium?1. Which of the following statements is FALSE? A) When an investment is risky, there are different returns it may earn. B) In finance, the variance of a return is also referred to as its volatility. C) The expected or mean return is calculated as a weighted average of the possible returns, where the weights correspond to the probabilities. D) The variance is a measure of how "spread out" the distribution of the return is.In the context of the Capital Asset Pricing Model (CAPM), the relevant measure of risk is A. standard deviation of returns. B. beta. C. variance of returns. D. unique risk.
- Unsystematic risk: is compensated for by the risk premium. is measured by standard deviation. is related to the overall economy. can be effectively eliminated by portfolio diversification. is measured by beta.Which of the following statements regarding unsystematic risk is accurate? Multiple Choice It is measured by beta. It is compensated for by the risk premium. It can be effectively eliminated by portfolio diversification. It is measured by standard deviation. It is related to the overall economy.1.) Which is false concerning standard deviation? a. The smaller the standard deviation is the less volatile the investment. b. A larger standard deviation means a riskier investment. c. Standard deviation measures the volatility of an investment from the expected losses. 2.) Which is false concerning covariance? a. A negative covariance means that the two variables tend to move in opposite directions, perpendicular to each other. b. A covariance of zero means there is no linear relationship between the two variables. c. A positive covariance means that the variables tend to move together .
- The return and volatility of ________ portfolios are often lower than those of other asset types a. Credit Investing b. Market Analysis c. Fixed Income d. Rate and ReturnA plot/graph of the positive relation between systematic risk and expected return is called: O security market line standard deviation and width of the normal distribution O covariance graph O capital asset pricing modelWhich of the following is true according to the pure expectations theory? Forward rates:a. Exclusively represent expected future short rates.b. Are biased estimates of market expectations.c. Always overestimate future short rates.