What is the estimated price if this person hedges?

Q: How is the risk-adjusted discount-rate approach more commonly practiced in the real world?

A: Risk adjusted discount rate approach is an approach which is used in assessment of various long-term…

Q: What does the seller of a put option hope will happen?

A: An option contract indicates a contract that allows its buyer to buy or sell an underlying at the…

Q: Money-market covered hedges can have variable outcomes while options are certain.   Group of answer…

A: Money market hedge is the hedging technique of locking the future value od exchange rate using money…

Q: How widely used is real option analysis?

A: Real option analysis is the analysis of a company’s opportunity cost of an investment or a…

Q: what is the difference between a call option and a put option?

A: There are two types of options one is call option and other is put option and both are derivative…

Q: Does the Efficient Market Hypothesi hold true? Why or why not?

A: The efficiency of the market relates to how efficiently prices represent all available information.…

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: Another name for the expected value of an investment would be: a. The mean value b. The risk-free…

A: The expected value (EV) is an anticipated value for investment at some point in the future. In…

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 is meant by a perfect hedge? Does a perfect hedge always lead to a better outcome than an…

A: A perfect hedge is a position taken by an investor that eliminates the risk of an existing position…

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: Why does standalone risk differ from portfolio risk? Explain and give examples! Relates your answer…

A: While making an investment, an investor is required to thoroughly examine all types of risks and…

Q: Conceptually, how does an investor choose his or her optimal portfolio?

A: The point where any of the ‘indifference curve’ are tangent to the efficient set of portfolios is…

Q: What is the relation between the expected rate of return and the required rate of return as they…

A: In the world of finance in general and investments in particular we often look at a security’s…

Q: What is the payback method? What are its main strengths and weaknesses?

A: Explain the meaning of the payback method.   The payback period is the expected time period which is…

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

A:

Q: what does Market's Risk premium measure

A: Market's Risk premium is an important term used in the capital asset pricing model equation (CAPM)…

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: Which hedging method would produce the best result for the hedger if markets were efficient

A: Hedging refers to the strategy that helps manage and minimize risk. The various hedging methods…

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: What is the maximum value that a call can take? Why? Explain which option (i.e. put or call)…

A: Options are of 2 types:1) Call Option2) Put Option

Q: Define fair value hedges.

A:

Q: Is the accept-or-reject decision rule the same as in the simple -investment case? Explain how?

A: Yes, accept or reject decision rule is the same as in the simple investment because accept or reject…

Q: How the risk and return trade-off can be applied in real life?

A: The risk-return tradeoff states that the return rises with an increase in risk. Investors use this…

Q: How can an investor eliminate Unsystematic Risk?

A: There are two types of risks: 1) Systematic risk 2) Unsystematic risk. Systematic risk is non…

Q: Market potential is an example of an economic risk measure. O True O False

A: Market potential refers to the expected total sales or revenue from a market, whereas an economic…

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: did hedging reduce volatility of the realized price?Answer Yes or No and explain

A: Hedging can be referred as a strategy that is used by the investors to reduce the risk associated…

Q: Differentiate between “buying a security on a margin” and “selling a security short”. When would an…

A: Buying assets on margin, also known as margin trading, is putting up collateral, usually with your…

Q: What impact does each of the followingparameters have on the value of a call option?(4) Risk-free…

A: An agreement where the holder has a right to purchase or sell the shares at a specific price at a…

Q: How can an investor eliminate Systematic risk?

A: There are two types of risks: 1) Systematic risk 2) Unsystematic risk

Q: 1) Let us start with what is the difference between a real and a financial asset? 2) What is the…

A: Real assets and financial assets are two distinct types of assets owned by businesses and…

Q: What are the assumptions of Option-pricing models?

A: There are two option pricing models they are: Binomial model option pricing model Black Scholes…

Q: What are the Black-Scholes Options Pricing Model's underlying assumptions?

A: The Black-Scholes Options Pricing Model can be defined as the pricing model used to ascertain the…

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.