Is it true that the the wider the risk premium, the lower the price of a expected future cash flow?

Q: Which of the following is a false statement of the market price of risk found in the Capital Market…

A: Portfolios that blend risk and return optimally are represented by the capital market line (CML).…

Q: Optimal portfolios can be obtained without diversification. True or false?

A: optimal portfolio are the one that minimises the risk for given level of return.

Q: As one adds more assets to a portfolio in order to achieve diversification, what will happen to the…

A: Diversification is referred to as the process in which more assets are added by the investors which…

Q: Investors require a _____ return as compensation for taking ____ risk. A) higher, margin B)…

A: Risk is the possibility that the actual return on any investment made might be different from the…

Q: Evaluate the following statement: If CAPM (Capital Asset Pricing Model) holds, the expected return…

A: CAPM or Capital Asset Pricing Model is the formula that represents the relationship between the…

Q: What are the components of the risk-free rate?

A: risk free asset: it is the asset which does not carry any risk.

Q: What is the capital asset pricing model (CAPM)? What does it tell us about the required return on a…

A: The required rate of return of a security is the minimum return an investor will demand from the…

Q: Is default risk premium likely to be pro-cyclical (i.e., increasing during economic expansion) or…

A: The difference between the company's actual interest rate and risk free rate within the industry is…

Q: Explain why the following statement is true: In general, the more uncertainty thereis about future…

A: An option which provides the holder an opportunity to delay or postpone the decision to invest until…

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: 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: When would I use the arithmetic average risk premium (as opposed to the geometric risk premium)?

A: The arithmetic average risk premium is calculated as the difference between the average return of an…

Q: How do maturity risk premiums affect the yield curve?

A: A premium, which a borrower pays to the lender in the form of compensation of interest rate…

Q: In what circumstances would you use one of the available risk measurements used in Modern Portfolio…

A: Modern portfolio theory refers to the theory of investment that allows the investors for…

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: Critically discuss the effect of diversification on portfolio risk. Is there any limit of…

A: A portfolio is the mixture of securities managed by the portfolio manager. We can take the amount in…

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: When considering multiple possible investments, why are rates of return preferable than monetary…

A: An investment's net profit or loss over a certain period expressed as a percentage of the…

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: theory

A: Portfolio theory is a mathematical framework that helps investors optimize their investment…

Q: What security provides a good estimate of the short-term nominalrisk-free rate?

A: T-bills are the treasury bills issued by the government. These bills are risk-free and the rate of…

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

A:

Q: Is the risk-free rate the Treasury yield?

A: The risk-free rate refers to the rate of return on an investment that is having zero risk of loss.…

Q: Which of the following statements is true for compensation of risk? a. Higher the risk, lower is the…

A: The Statement for compensation of risk is as under-

Q: What security provides a good estimate of the long-term nominalrisk-free rate?

A: Risk-free Rate is the estimation of the rate that is earned on the securities or the investments…

Q: Under prospect theory, the shape of the utility function implies that investors are

A: Under prospect theory, the shape of the utility function implies that investors are: (A) Always risk…

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: Do you believe on the principle-higher risk provides higher return? Can we achieve high return with…

A: Return is the reward which an investor will get by investing money in return and risk is the chance…

Q: Why we can make money more than the risk-premium under the CAPM

A: Risk premium is the expected rate of return on an investment which is above the risk-free rate of…

Q: O The market rate of return. O Zero rate of return. A negative rate of return. O The risk-free rate.

A: Expected rate on security depends on the risk free rate and market rate and risk related to security…

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: 3. The beta for the risk-free investment is closest to: A) 1. B) 0. C) Unable to answer this…

A: Beta is a measure of systematic risk which cannot be eliminated through diversification.  In other…

Q: Explain Price Return Swap?

A: A derivative contract which enables two parties to exchange financial instruments, cash flows,…

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.