Explain the following three variables which influence the overall rate of return on alternative investments: The real risk-free rate of return The nominal risk-free rate of return The risk premium on the investment
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Explain the following three variables which influence the overall rate of
- The real risk-free rate of return
- The nominal risk-free rate of return
- The risk premium on the investment
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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 consumptionExplain what is the criterion used by a rational investor for choosing a financial investment in terms of its risk return combination.What is a satisfiable investment? When the present value of benefits surpasses the cost of an investment, what conclusion can be drawn about the investor's rate of return in comparison to the discount rate?
- Explain the three variables which influence the overall rate of return on alternative investmentsCapital asset pricing theory asserts that portfolio returns are best explained by:a. Economic factors.b. Specific risk.c. Systematic risk.d. Diversification.An investment requires a total return that comprises: O a real rate of return and compensation for inflation. a real rate of return, compensation for inflation, and a risk premium. compensation for inflation and a risk premium. a real rate of return, compensation for inflation, a risk premium, and compensation for time and effort devoted to researching alternative investments. None of the above
- (b) Explain the relationship between net present value and internal rate of return, and show how they may offer complementary methods for evaluating investments.What is a satisfactory investment? When the present value of benefits exceeds the cost of an investment, what can you conclude about the rate of return earned by the investor relative to the discount rate?The following is a concise explanation of the primary investment risk characteristics that investors must consider while picking between different investments.