Which of the following is NOT true?You might be better off using elimination approach for this question if your other courses (Financial Management, Investment/PortfolioManagement) did not familiarize yourself with the concept of risk-neutrality.In risk-neutral valuation the risk-free rate is used to discount expected cash flowsIn risk-neutral valuation the expected return on all investment assets is set equal to the risk-free rateO Derivatives can be valued based on the assumption that investors are risk neutralO Risk-neutral valuation provides prices that are only correct in a world where investors are risk-neutralNone of these (i.e. all are TRUE)

Several statements have been provided about the risk neutral valuation methodologies and their…

Which of the following is NOT true? You might be better off using elimination approach for this question if your other courses (Financial Management, Investment/Portfolio Management) did not familiarize yourself with the concept of risk-neutrality. O In risk-neutral valuation the risk-free rate is used to discount expected cash flows O In risk-neutral valuation the expected return on all investment assets is set equal to the risk-free rate O Derivatives can be valued based on the assumption that investors are risk neutral O Risk-neutral valuation provides prices that are only correct in a world where investors are risk-neutral O None of these (i.e. all are TRUE)

Which of the following is NOT true? You might be better off using elimination approach for this question if your other courses (Financial Management, Investment/Portfolio Management) did not familiarize yourself with the concept of risk-neutrality. O In risk-neutral valuation the risk-free rate is used to discount expected cash flows O In risk-neutral valuation the expected return on all investment assets is set equal to the risk-free rate O Derivatives can be valued based on the assumption that investors are risk neutral O Risk-neutral valuation provides prices that are only correct in a world where investors are risk-neutral O None of these (i.e. all are TRUE)

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter11: Risk-adjusted Expected Rates Of Return And The Dividends Valuation Approach

Section: Chapter Questions

Problem 3QE

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Which of the following is NOT true? In risk-neutral valuation the risk-free rate is used to discount expected cash flows Options can be valued based on the assumption that investors are risk neutral Risk-neutral valuation provides prices that are only correct in a world where investors are risk-neutral In risk-neutral valuation the expected return on all investment assets is set equal to the risk-free rate
What does Jensen's alpha measure? a. An investor's reward in proportion to their assumption of systematic risk b. The abnormal return of an asset, defined as the degree to which its actual return exceeds that predicted by the capital asset pricing model c. The degree to which diversifiable risk is eliminated d. How much reward an investor is getting for each unit of risk assumed
Which of the following statements are true about systematic risk? Select one or more: a. Beta is a measure of systematic risk in ALL asset pricing models b. Systematic risk can be fully eliminated by diversification С. Systematic risk can be traded among financial entities but cannot be destroyed or eliminated d. All stocks must have the same exposure/factor loading on systematic risk e. Systematic risk is priced f. The premia on systematic risk must always be higher than the risk-free rate Which statements are true of optimization? Select one or more: a. It is a general mathematical tool and can be used not only in portfolio optimization but many business problems b. When applied in real world setting we often use computers to estimate the optimum numerically rather than doing calculus by hand с. One of the earliest applications of optimization to business problems is Augustin Cournot's 1838 duopoly pricing model d. Optimization can only ever be as effective as the description of the…
Whether the following statement is true or wrong. Briefly explain your answer. "It is impossible to have an asset that is risk-free for all investors.” [Hint: Consider the relationship between the investment period of investors and asset maturity, inflation and other factors.)
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Which of the following is NOT true? O In risk-neutral valuation the risk-free rate is used to discount expected cash flows Options can be valued based on the assumption that investors are risk neutral O None of these (i.e. all are TRUE) O In risk-neutral valuation the expected return on all investment assets is set equal to the risk-free rate O Risk-neutral valuation provides prices that are only correct in a world where investors are risk- neutral ◄ Previous Next ▸