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- If we assume that investor can borrow at risk-free interest rate, then the efficient frontier is 1) AB 2) MV-B 3) Rf-T-A 4) Rf-T-B 5) Rf-T-LAssume you’re an investor and you expect interest rate to rise in the near future, how would this affect your investment decision in the short and in the long term. Assume you’re a potential borrower and you anticipate that interest rate will decline in the near future. How will affect your borrowing decision in the short term as well as in the long term.Assume an investor with a utility of the form U= E -0.5As2 . For the risk aversion values of A=1 The utility of investing in EEM is A. lower than the utility of investing in IWM B. higher than the utility of investing in IWM C. equal than the utility of investing in IWM D. none of the above
- When a firm invests in money market instruments, it is taking _______ and should expect __________. Question 17 options: 1) high risk, high returns 2) high risk, low returns 3) low risk, low returns 4) low risk, high returnsK possible Risk-Free Rate. What is a risk-free rate? Give an example of an investment with a risk free rate. Why is there no risk? A risk-free rate is: (Select the best answer below.) OA. an interest rate that is not guaranteed on an investment for a specified period. OB. an interest rate guaranteed on an investment for a unspecified period. OC. an interest rate guaranteed on an investment for a specified period. OD. an interest rate that is not guaranteed on an investment for an unspecified period. There is no risk because a risk-free investment: (Select the best answer below.) OA. pays an interest rate guaranteed on an investment for an unspecified period. OB. would pay investors even if the financial institution went into bankruptcy. OC. is a checking account. OD. is a zero interest loan.. Suppose interest rates are increasing enough that it can be modeled with r →∞.(a) What is the value of a Call?(b) What is the value of a Put?(c) Explain both answers in terms of finance.
- Suppose investors expect interest rates to increase substantially in the future. Currently, should they prefer to purhcase short-term or long-term investments? Explain your asnwer.Suppose an investor observes an upward term structure of interest rate. Answer the followingquestions. (a) According to the expectation hypothesis, what will be the investor’s forecast about futurechange of interest rate (increase, decrease or unchanged)? (b) What will the investor say about the future change of interest rate according to liquiditypreference theory? Explain your argument.Can someone give an example or scenario about the following: 1. Capital Asset Pricing Model2. Market Risk premium3. Risk free rate4. Security market line5. Systematic risk
- What is meant by the real risk-free rate of interest? Seleccione una: a. The nominal risk-free interest rate, less the expected inflation. b. The rate actually used in the market, not in textbooks. c. The rate quoted on short-term Treasury bills. d. The opportunity cost of foregoing consumption, representing the rate that must be offered to individuals to persuade them to save rather than consume.Let rf be the risk free rate of interest. E[r e ] be the expected return of some risky asset. Suppose that this risky asset pays out in states when the aggregate endowment is particularly low. There are three possibilities: ( a) E[r e ] > rf (b) E[r e ] = rf (c) E[r e ] < rf Which case applies to E[r e ] and why?Exploring Finance: Security Market Line. Security Market Line Conceptual Overview: Explore the determinants of the security market line. The Security Market Line defines the required rate of return for a security to be worth buying or holding. The line, depicted in blue in the graph, is the sum of the risk-free return (rf in the slider) and a risk premium determined by the market-risk premium (RPM) multiplied by the security's beta coefficient for risk. Drag the rf slider below the graph to change the amount of the risk-free return. These changes reflect changes in inflation. Drag the RPM slider below the graph to change the relationship between a security's beta coefficient and the amount of the market risk premium. Drag left or right on the graph to move the cursor line to evaluate securities with different beta coefficients. r = r_{RF} + RP_M * beta = 6\% + 5\% * 1 = 6\% + 5.00\% = 11.00\%r=rRF+RPM∗beta=6%+5%∗1=6%+5.00%=11.00% 1. For a risk-free return rate of 5%, a…