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Which of the following statements about currency risk is TRUE: Group of answer choices
The currency risk of an international stock portfolio is the volatility of portfolio returns
It is impossible to measure currency risk for international bond portfolios
The currency risk of a domestic stock portfolio is zero
None of these answers is correct
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- Which 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.The risk of investing in foreign stock markets depends on exchange rate uncertainty more than the risk of investing in foreign bonds. Select one: True FalseThe risk premium for an investment: Answer a. Is negative for U.S. Treasury Securities b. Is zero (0) for risk-averse investors c. Increases with risk d. Is a fixed amount added to the risk-free return, regardless of the level of risk
- 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 ▸Answer the following independent questions: a) Explain why international stock might have high volatility but low betas. b) Do you agree with the following statement? And explain why. "The Capital Asset Pricing Model [CAPM] assumes that the stock market is dominated by welldiversified investors who are concerned with specific risk ) llustrate how to synthesize a forward hedging strategy by using only the money markets, in order to hedge against the foreign exchange risk. d) Use a numerical example to illustrate that when there is a large change in the interest rate, the approximation error by using the duration and convexity rule is smaller than the approximation error by using the duration rule only. e) Why do we say a coupon bond can be seen as a package of zero-coupon bonds? Please use a numerical example for illustration. f) If the spot exchange between Euro and pound is Euro 1.1/Pound, and the UK Guilt returns a 0.5% yield. It is also known that the Euro is expected to depreciate…Which of the following statements is FALSE? i. The amount of a portfolio's risk that is diversified away depends on risk of assets that you add it to ii. The amount of a portfolio's risk that is diversified away depends on market risk premium iii. The amount of a portfolio's risk that is diversified away depends on risk-free rate of interest iv. The amount of a portfolio's risk that is diversified away depends on weights of the assets that you add it to O i and ii O ii and iii iii and iv O i and iv O ii, iii and iv
- 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…Q1. Why is some risk diversifiable and other risk is not (non-diversifiable)? Q2. Yes or no, are industries that have a high standard deviations (wide fluctuation of the price of the stock) not useful as investments? Beyond answering Yes or no, state the reason behind your choice.Which of the following statements about the Fama-French three-factor model is wrong: A. Company size has an explanatory power in explaining the portfolio returns. B. Market risk has an explanatory power in explaining the portfolio returns. C. Book-to-market value companies has an explanatory power in explaining the portfolio returns. D. None of these factors. E. All of these factors.
- Which of the following is a false statement of the market price of risk found in the Capital Market Line? a) The incremental risk divided by the incremental expected return. b) Indicates the additional expected return that the market demands for an increase in a portfolios risk. c) The equilibrium price of risk in the capital market. d) The slope of the capital market line.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 rateEquity price risk is the risk that arises from security price Choose. - the risk of a Choose.. v in the value of a Choose... v or a portfolio. Equity price risk can be either systematic or Choose. v risk. In a global economic crisis, equity price risk is Choose.. because it affects multiple assets Choose. volatility decline classes. increase specific systematic security