The beta risk of a share reflects the sensitivity of cash flow, earnings, and the share price to what sort of movements? Select one: a. Industry-wide market movements. b. Capital market movements. c. Economy-wide market movements. d. All of these.
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- 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 choiceWhich of the following is needed to calculate a firm’s WACC? A. the cost of carrying inventory B. the amount of capital necessary to make the investment C. the cost of preferred stock D. the probability distribution of expected returns E. both b and cDefine the terms covariance and correlationcoefficient. How are they related to one another,and how do they affect the required rate of returnon a stock? Would correlation affect its requiredrate of return if a stock were held (say, by the company’s founder) in a one-asset portfolio?
- 1. Beta is positively related A. the degree of correlation between a stock's return and the market return B. the systematic risk of a stock C. risk premium required by the stock D. all of the above3) The return on a stock, in a factor model, in a given period will be related to A) firm-specific events. B) macroeconomic events. C) the error term. D) both firm-specific events and macroeconomic events. E) neither firm-specific events nor macroeconomic events. 4) Assume the index model is valid, what inputs will be required to determine covariance between two assets? A) βk B) βL C) σM D) all of the options E) None of the options are correct.Choose the correct answer with justification.The slope of the Security Market Line equals to ____, and the slope of Capital Allocation Line equals to____. Select one: A. Beta; Sharpe Ratio B. Market Risk Premium; Sharpe Ratio C. Risk free rate; Volatility D. Market Risk Premium; Volatility
- In what sense do these market value ratios reflect investors’ opinions about a stock’srisk and expected future growth?The additional return over the risk-free rate needed to compensate investors for assuming an average amount of risk. a. Market Risk Premium b. Risk-free rate С. Stock's beta O d. Security Market Line e. Required Return on Stock2. In the capital asset pricing model, what does the stock beta stand for? (a) The volatility of the security (b) The joint volatility of any two securities in a portfolio (c) The relative co-movement of a security with respect to the market portfolio (d) The volatility of a security divided by the volatility of the market index
- according to capm the expected return on equity includes a reward for: a. market risk and specific risk b. Specific risk only c. Time value of money and market risk d. Diversification and portfolio risk e. Time value of money and specific riskWhich statement is not true regarding the market portfolio? Group of answer choices a. It includes all publicly-traded financial assets. b. It lies on the efficient frontier. c. All securities in the market portfolio are held in proportion to their market values. d. It is the tangency point between the capital market line and the indifference curve.Share Price can be determined by the cash flows and risk. Assume other things held constant, increased in risk will result in a. a lower share prices b. a higher share prices c. unchanged share price d. an undetermined share prices
