investments with low return variances usually: a. have a high return standard deviation b. have very high returns c. have realized returns higher than expected returns d. none of these options e. have realized returns close to exoexted returns
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investments with low return variances usually:
a. have a high return standard deviation
b. have very high returns
c. have realized returns higher than expected returns
d. none of these options
e. have realized returns close to exoexted returns
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- What assumption about risk-adjusted techniques for measuring performance poses a potential problem? A. Portfolio risk is constant over time B. Returns are normally distributed C. Mean reversion D. None of the options are correct.An investment with a high return is likely to be high riskA. TrueB. FalseWhat assumption about risk-adjusted techniques for measuring performance poses a potential problem? A. Portfolio risk is constant overtime B. Returns are normally distributed C. Mean reversion D. None of the options are correct E. Lognormal outcome of prices
- Risk and Return Suppose you hold an asset that delivers a return R. You wish to hedge against a decline in the price of this asset using a risk-free asset with return r; and a market index with return RM. Using the CAPM, explain how you would allocate money between the risk-free asset and the market index so as to minimize your portfolio variance.(a) According to CAPM, the expected return of a risky asset is larger than the risk free rate. (b) According to CAPM, the expected return of a risky asset increases with its variance. (c) According to the separation property, the optimal risky portfolio for an investor dependson the investor’s personal preference. (d) A less risk-averse investor has a steeper indifference curve for the utility function.if asset A has lower volatility than asset B, then it contributes less to the overall volatility when added to a portfolio. True or false?
- The probability distribution of a less risky return is more peaked than that ofa riskier return. What shape would the probability distribution have for (a)completely certain returns and (b) completely uncertain returns?Some assumptions of Markowitz Portfolio Theory are said to be : (a) Investors consider each investment alternative as being presented by a probability distribution of expected returns over some holding period. (b) Investors estimate the return of the portfolio on the basis of the variability of expected Risk. (c) Investors base decisions solely on expected return and risk, so their utility curves are a function of expected return and the expected variance (or standard deviation)of returns only. (d) Investors minimize one-period expected utility, and their utility curves demonstrate diminishing marginal utility of wealth. a. B & C only b. B , C and D only c. All of the above d. A ,C and D onlyWhich one of the following statements is correct? Group of answer choices The lower the average return, the greater the risk premium. The greater the volatility of returns, the greater the risk premium. The lower the volatility of returns, the greater the risk premium. The risk premium is not affected by the volatility of returns. The risk premium is unrelated to the average rate of return.
- The expected rate of return of an investment ________. a. equals one of the possible rates of return for that investment b. equals the required rate of return for the investment c. is the mean value of the probability distribution of possible returns d. is the median value of the probability distribution of possible returns e. is the mode value of the probability distribution of possible returnsEvaluate 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).If an investment’s expected return (mean return) does not plot on the SML, what does it show? Identify undervalued/overvalued investments from the graph.