Suppose that we can describe the world using two states and that two assets are available, asset K an asset L. We assume the asset's future prices have the following distribution State Future Price Asset K Future Price Asset L 1 $60 $55 $45 2 $30 The current price of asset K is $50, and the current price of asset L is $50.

Q: What determines the acceptable level of Detection Risk?

A: Detection Risk:   It is a chance that an auditor will fail to identify any material misstatement…

Q: Define beta risk

A: The portfolio beta is a measure of the portfolio’s volatility. It measures how the stock moves in…

Q: How do an investment's required rate of return vary with perceived risk? Explain with an example?

A: Required rate of return refers to the rate which the investors expects from their investments. This…

Q: What happens to the SML graph when risk aversion increasesor decreases?

A: Risk Aversion: The ability of a human being to avoid the risk and eventually reducing losses that…

Q: eristics?

A: Step 1   Risk is defined as an occurrence that harms financial performance and/or reputation as a…

Q: explain what is the risk-return principle with one example

A: The risk-return principle is a fundamental concept in finance that states that the potential return…

Q: Explain Contraction risk?

A: Contraction risk may be a hazard that the backer of fixed-revenue securities faces. This hazard…

Q: What is fundamental beta?

A: Introduction: Beta is nothing but a metric used to assess a portfolio’s uncertainty or risk, with a…

Q: What is security Market Line (SML)? How it explains risk-return relationship? Explain different…

A: What is security Market Line (SML)? The security market line can be understood as a tool for…

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: What outcomes are possible with speculative risk?​

A: Speculative risk is a form of risk in which the outcome is unknown and there is a chance of both…

Q: liquidity risk?  Define briefly with an appropriate example

A: Risk means uncertainties in the future. There is a high risk involved in every investment because…

Q: What are quantitative measurements versus non-quantitative measurements with respect to risk?

A: Risk is used to describe the probability or uncertainty related to a future event with a favorable…

Q: Define within-firm risk

A: Within-firm risk: Corporate (within-firm) risk is a hazard identified with an individual business.…

Q: Define Risk in general

A: In finance, risk is defined as the level of vulnerability that potentially creates financial loss…

Q: What is reinvestment rate risk?

A: The reinvestment rate risk is the potential decline in the interest income that tends to be a result…

Q: What is the y risk-free investment?

A: Risk-free rate of return is the rate of return that an investor expects from an investment in any…

Q: What does it mean when you have a risk-free guaranteed rate? Give an example as well as the…

A: Theoretically, an investor anticipates a return of no less than the risk-free rate on any investment…

Q: What role does MAD play in evaluating a forecasting model?

A: MAD refers to mean absolute deviation. It is also known as average absolute deviation which is the…

Q: What security provides a good estimate of the real risk-free rate?

A: A Treasury bill (T-Bill) is the short-term liability of US public debt supported for 1 year or…

Q: An expense ratio of 26% indicates low insurance company expenses in acquiring business. Select one:…

A: The expense ratio for an insurance company is an indicator of profitability. This ratio shows that…

Q: Basic Elements of Risk-Adjusted Returns?

A: Introduction: Risk adjusted return is a methodology for calculating and evaluating the returns on an…

Q: What type of risk is measured by the standard deviation?

A: Standard deviation is the measure of risk that the actual return of an investment will deviate from…

Q: Why does riskiness increase with time?

A: Risk can be said as that difference that arises which arises on expected outcome or investment's…

Q: What kind of investment is considered to be risk-free?

A: A risk-free investment is an investment that has a minimum or no fluctuation from the expected…

Q: averse

A: Risk is involved in everything. Risks will be there right from the task that we do till the…

Q: What is the relationship of risk to the investment?

A: There is a direct relationship between risk and return in investment decision making. It means…

Q: Why is the default F risk in a CMBS offering given more attention?

A: A default risk is the likelihood that the guarantor of a bond won't have the option to reimburse the…

Q: What is historical beta?

A: Step 1: Introduction Beta is a measure of systematic risk or it measures the volatility of a stock…

Q: What does a project’s stand-alone risk reflect?

A: Stand alone risks are risks that are associated with a particular asset or a project. Companies when…

Q: What is meant by the phrase natural hedging againstexchange rate risk?

A: Hedging is a mechanism that is used to eliminate or minimize the risk of loss that is associated…

Q: Discuss the Beta of  as measure of systematic risk.

A: In finance systematic risk refers to that risk which is inherent to the entire market. As the risk…

Q: What is the expected spot rate?

A: A spot rate is a price quoted for immediate settlement on an interest rate, commodity, security, or…

Q: How are total risk, nondiversifiable risk, and diversifiable risk related? Why is nondiversifiable…

A: Diversifiable risk refers to the risks that can be eliminated or mitigated using diversification.…

Q: What is idiosyncratic risk? How does it differ from market risk?

A: Idiosyncratic risk or unsystematic risk or specific risk is that risk which belongs to specific…

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.