If the expected rate of return for the market is not much greater than the risk-free rate of return, what does this suggest about the general level of compensation for bearing systematic risk?

Q: How is the risk-adjusted discount-rate approach more commonly practiced in the real world?

A: Risk adjusted discount rate approach is an approach which is used in assessment of various long-term…

Q: What is a satisfiable investment? When the present value of benefits surpasses the cost of an…

A: This question explains about the present value of benefits surpasses and the cost of an investment…

Q: Why are the net present value and the internal rate of return models superior to the payback period…

A: The net present value and internal rate of return techniques are superior to the payback method…

Q: The desired rate of return on an investment should reflect the degree of risk involved. A.   True…

A: Riskier investments may give higher returns to the investors as they provide favorable ratio of risk…

Q: Is the statement that a pproject that is unacceptable today might be acceptable tommorrow given a…

A: Yes , the statement is correct. Any changes related to market returns affects project of a company.…

Q: What is the expected return on a portfolio? How can the expected return on a portfolio be…

A: Expected Return on Portfolio  =( Weights of Stock 1 * Return of Stock 1) + ( Weights of Stock 2 *…

Q: The Capital Asset Pricing Model (CAPM) asserts that an asset’s expected return is equal to the…

A: Based on CAPM, Expected return on security = Risk free rate + Beta * Market risk premium

Q: 1. In broad terms, why is some risk diversifiable? Why are some risks nondiversifiable? Does it…

A: Unsystematic risk is a risk that is distinctive to a particular firm or industry. Nonsystematic risk…

Q: How would the risk premium work out for a riskier investment?

A: A risk premium is a return on venture over the hazard free rate a financial specialist requires to…

Q: o risk premiums influence financial decisions regarding risk and re

A: Step 1 A risk premium is an investment return that is expected to generate more than the level of a…

Q: How does interest rate risk differ from reinvestment rate risk? Why is the difference important?

A: Interest Rate Risk and Re investment Risk Interest rate risk results from the possibility that…

Q: What are the risk implications for an investor for a returns series that exhibits fat tails?

A: Fat tails means that there are more than three standard DEVIATION movements more than normal…

Q: ected rate of return concept differ from that of the rea

A: There are many method of valuation of stock based on expected rate and realized return and dividends…

Q: Explain why risk adjustments are important and how they can affect firm value.

A: Risk adjustments are a critical component of financial analysis and investment decision-making,…

Q: How does risk affect interest rates?

A: The risk and the interest rates are in a direct relationship that is, the greater the risk the…

Q: What is meant by the term abnormal rate of return?

A: Abnormal rate of return is return earned above or below the normal rate of return.

Q: What is the relation between the expected rate of return and the required rate of return as they…

A: In the world of finance in general and investments in particular we often look at a security’s…

Q: Using examples, explain how firms are affected by both systematic and firm-specific risk. What is…

A: There are two types of risk systemic risk and firm specific risk.

Q: What is the expected return on a portfolio? How can the expected return on a portfolio be…

A:

Q: what does Market's Risk premium measure

A: Market's Risk premium is an important term used in the capital asset pricing model equation (CAPM)…

Q: omparing Value at Risk (VAR) and Expected Shortfall (ES), which is preferred by regulators for…

A: VAR that is value at risk and another is ES expected shortfall these are two methods to measure the…

Q: Which of the following is the risk due to inflation?      Business risk     Financial risk…

A: In the dynamic landscape of finance and investments, one risk looms large, silently eroding the…

Q: A "risk-premium" is the difference between ___________________________ . A) the variance of a…

A: Solution:- Capital Asset Pricing Model (CAPM) is the equity model to determine the expected rate of…

Q: If we are speaking about the CAPM model and undiversifiable risks.    Then what is meant by…

A: CAPM model The Capital asset pricing model (CAPM) refers to an idea that describes the systematic…

Q: Explain Risk Premiums, Interest Rate Risk, and Default Risk?

A: Risk premium: A risk premium is nothing but the return above the risk-free rate of return that an…

Q: Describe the process of using the risk-adjusted discount rateto calculate the net present value?

A: Net present value (NPV) is the excess of present value of cash inflows over the present value of…

Q: Explain how the concept of comparable risk is incorporated into the discount rate.

A: The concept of comparable risk is fundamental to determining the appropriate discount rate to use…

Q: How is it possible to achieve a higher rate of return without significantlyincreasing risk?

A: As we all learnes till now that higher the risk provides higher return and if we want the high…

Q: What happens to the price and return of a security when investors recognize it as undervalued?…

A: Undervalued-If a security is selling in the market at a price below its true intrinsic value, then…

Q: What is definitions of this?   Systematic risk  Risk free rate of return  Market rate of…

A: Capital asset pricing model (CAPM) can be used to compute the return expected by the investors by…

Q: Suggest what is the best financial instrument to offset market risk exposure and from market…

A: The question is based on the concept of hedging the market risk and volatility by use of a proper…

Q: your view, what is the most important prediction of the Capital Asset Pricing Model? Among the…

A: 1) Capital asset pricing model is a model used to determine the required rate of return of an asset…

Q: How the risk and return trade-off can be applied in real life?

A: The risk-return tradeoff states that the return rises with an increase in risk. Investors use this…

Q: What is duration gap model? Explain the concept of duration. How duration measure can be used to…

A: Duration gap measures the mismatch between the duration of assets and liabilities held by a…

Q: How can an investor eliminate Unsystematic Risk?

A: There are two types of risks: 1) Systematic risk 2) Unsystematic risk. Systematic risk is non…

Q: Market risk ________.   a. is equal to the rate of return generated by a risk-free asset b.…

A: By simple diversification the total risk can be reduced but can not be totally eliminated. The…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.