Which of the following is included inthe risk-free rate? O A. the default premium O B. the expected inflation premium O C. the liquidity premium O D. the maturity premium O E. All of the above are included in the risk-free rate.

Q: assets that you add it to ii. The amount of a portfolio's risk that is diversified away depends on…

A: Step 1 Unsystematic risk refers to a general risk to the company or industry. Informal risk is also…

Q: What is the market risk premium (rM - rRF)?

A: The market risk premium can be found using the CAPM Model As per CAPM Model, expected return = Risk…

Q: 19. The slope of the SML is determined by the value of market risk premium. a. True b. False

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: According to the single index model, the inflation risk is an example of the:

A: Single Index Model is the type of an asset pricing model which determines the returns on security…

Q: The risk-free rate of return can be thought of as consisting of ____ and ____.   a. unanticipated…

A: The theoretical rate of return for an investment with no risk is known as the risk-free rate of…

Q: Given a real rate of interest of 2%, an expected inflation premium of 3%, and risk premiums for…

A: The capital asset pricing model (CAPM) refers to the model which tells us how the financial markets…

Q: Some characteristics of the determinants of nominal interest rates are listed as follows. Identify…

A: The short-term riskless security rate during the period where inflation is expected to zero- real…

Q: Portfolio risk is comprised of risk, risk. Select one: a. diversifiable; plus unsystematic

A: Risk is the amount of money lost from an investment. Risks are of two types. 1. Systematic risk 2.…

Q: How is the call option price impacted by varying the risk free rate of interest? How is the call…

A: 1) Call option is the contract according to which the buyer of the option has the right but not the…

Q: Which of the following statements about expected rate of return is most correct? The weighted…

A: EXPECTED RETURN = RISK FREE RATE + BETA X MARKET RISK PREMIUM.

Q: What is the spread (i.e., difference) between futures price and spot price called? a) Convergence…

A: The futures price is an estimated price the investor expected in the future.  The spot price is a…

Q: Write a general expression for the yield on anydebt security (rd) and define these terms: real…

A: The real risk-free rate of interest: It is risk-free interest after inflation rate alteration. Let's…

Q: Define each of the following terms:j. Real risk-free rate of interest, r*; nominal risk-free rate of…

A: Real risk-free rate of interest: The risk-free rate signifies the interest a saver might expect from…

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: Is the risk-free rate the Treasury yield?

A: The risk-free rate refers to the rate of return on an investment that is having zero risk of loss.…

Q: An efficient capital market is best defined as a market in which security prices reflect which one…

A: Efficient Capital Market: It is the market where all  available information is reflected in asset…

Q: Which of the following is/are an examples of unsystematic risk of a stock   O a Political risk…

A: Operating Risk

Q: . The difference between the expected (c equired) return for the market portfolio ar he risk-free…

A: This pertains to the CAPM (capital asset pricing model). The difference between expected return on a…

Q: Describe the process of using the risk-adjusted discount rateto calculate the net present value?

A: Net present value (NPV) is the excess of present value of cash inflows over the present value of…

Q: Beta is which of the following: A) standard deviation. B) total risk. C) Beta is the relationship…

A: option C is correct  Beta is the relationship which is between an investment's return, and the…

Q: What is definitions of this?   Systematic risk  Risk free rate of return  Market rate of…

A: Capital asset pricing model (CAPM) can be used to compute the return expected by the investors by…

Q: arket's Risk premium measures Select one: a. The market return plus the risk free rate. b. The…

A: The market risk premium represents the market participants demand extra return by increasing the…

Q: Define each of the following terms:k. Inflation premium (IP); default risk premium (DRP); liquidity;…

A: The default risk premium or (DRP) is the additional return to be paid by the borrower to the loan…

Q: Which of the following are NOT the determinants of option prices? Select one: i. Average return ii.…

A: Solution: Option are one of the derivatives which grant a right to option holder to buy or sell the…

Q: The term structure of interest rates is related to the ____ risk premium.

A: Default risk premium is a type of risk premium which compensates the investor for the risk that…

Q: The real rate of return is related to O The risk-free rate The risk-free and the inflation rate The…

A: Real rate of returnAn annual profit percentage that is earned on the investment, being adjusted for…

Q: After the calculation of the correct equity beta, then i want to calculate the expected return by…

A: The CAPM: The CAPM or the Capital Asset Pricing model gives the expected rate of the equity of a…

Q: Market risk embodies the following risks except: O a. Financial. O b. Interest rate. Tax. O d.…

A: Market risk is a undiversified risk which cannot be controlled. It is a systematic risk that affects…

Q: A bond’s expected return is sometimes estimated by its YTM and sometimes by its YTC. Underwhat…

A: Yield to Maturity (YTM) is the total return for the bond from the time of purchase till its…

Q: Discuss the following statement: A bond’s yield to maturity is the bond’s promised rate ofreturn,…

A: As per the statement bond's yield to maturity is equal to the bond's promised rate of return or…

Q: What is a risk measure? a Alpha  b Required return on the market portfolio  c Standard deviation of…

A: Risk measures are factual measures that are chronicled indicators of speculation hazard and…

Q: Define each of the following terms:l. Interest rate risk; maturity risk premium (MRP); reinvestment…

A: Interest rate risk: Interest rate risk is the chance of a decay in the worth of an asset resultant…

Q: b) Give a graphical example to present the positioning of. E Systematic risk E Risk free rate of…

A: Risk is the uncertainty associated with an investment. The investor receive higher return to…

Q: Most evidence suggests that a positive maturity risk premium exists. How would thisaffect your…

A: The question is based on the concept of calculation of interest rate in a bond with association to…

Q: The security market line has a slope equal to the   a) Risk-free rate b) Market risk premium c)…

A: Security market line is the line shown on a graph that represents the relationship between the…

Q: What is maturity risk premium (MRP)?

A: normally Maturity risk premium is the extra return that an investor will get for bearing the…

Q: Which of the following is true about Interest Rate? i. The Fisher Effect illustrates the positive…

A: Interest rate refers to the amount of money that a financial institution or money lender receives…

Q: Define default risk premium (DRP)

A: Generally, the interest rate charged is made up of the following components: Risk-Free Rate…

Q: Portfolio risk is comprised of risk risk. Select one: O a. firm-specific; plus diversifiable b.…

A: Portfolio are created to diversify firm specific or unsystematic risk. Risk which cannot be…

Q: "Fisher effect defines the relationship between nominal rates, real rates, infiation, default…

A: Fischer effect:- It is an important concept of economics that describes the releationship between…