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- What is the Security Market Line (SML)? How isbeta related to a stock’s required rate of return?a. What is the relationship between the expected return of a stock and its fair expected return? When is a stock underpriced, overpriced, or fairly priced?Q.What are the main stock- and firm valuation methods and is there a relationship between the stock price and the firm value? explain briefly
- What factors are important when calculating the intrinsic value of a stock?What does the capital asset pricing model (CAPM) calculate? a. The expected rate of return on an individual stock with respect to the risk-free rate of return b. The expected rate of return of an individual stock based on its overall risk c. The expected rate of return of an individual stock with respect to its market risk only d. The expected rate of return of an individual stock reflecting its financial risk Clear my choiceExplain why common stock is itself like a call option. What plays the role of the exercise price and what plays the role of the underlying stock?
- What is relationship between the market risk of a stock and it's expected return?What does vega measure? What can you tell from vega value? Can the vega of a derivatives portfolio be changed by taking a position in the underlying asset? Explain your answer.Can a derivative security's value be determined by an underlying single stock (e.g., IBM, MMM, GE)? If no, explain. Can a derivative security's value be determined by an underlying fixed income index? If yes, explain. What is the difference objective, if any, between a long futures contract, a put option contract, and a long forward contract? What are the two primary functions of derivative securities (i.e., what classifications of participants do they serve)? Finally, what does "market efficiency" suggest? Explain the significant advantage and disadvantage of Inflation Protected Treasury Bonds (TIPS). Who or what investor would likely prefer a municipal bond issued by the Commonwealth of Virginia? If a corporate bond yields 8%, to be competitive (e.g., indifferent), what would a municipal bond need to yield for an investor in the 40% tax bracket? In municipals, what, if any, is the difference between a general obligation and revenue bond? What is a pass-through security, a conforming…