a) Distinguish between systematic risk and unsystematic risk, and explain the significance of the distinction in portfolio analysis. b) Explain what is meant by a share’s beta value. c) Outline the main practical problems in using the CAPM in capital investment decisions. d) Discuss the assumption in CAPM analysis that corporate debt has a zero beta value
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a) Distinguish between systematic risk and unsystematic risk, and explain the significance of the
distinction in portfolio analysis.
b) Explain what is meant by a share’s beta value.
c) Outline the main practical problems in using the
d) Discuss the assumption in CAPM analysis that corporate debt has a zero beta value
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- The capital asset pricing model expresses the cost of equity as a function of a return on riskless assets, a market premium, and: Select one:a. Unsystematic risk.b. None of these.c. The cost of debt.d. Systematic risk.a.Distinguish between systematic and unsystematic risk and explain the significance of the distinction portfolio analysis b. Describe the assumption in CAPM analysis that corporate debt as a zero beta value c. Based on both the CAPM and Modigliani- Miller proposition (11), explain the support of relevant equations, how changes in the debt equity ratio can change a firm's equity betaExplain the concept of ‘beta’ within the framework of the Capital Asset PricingModel (CAPM). Discuss the relevance of the covariance between assets returnsfor an investor wishing to diversify the risk of a portfolio.
- Capital asset pricing theory asserts that portfolio returns are best explained by:a. Economic factors.b. Specific risk.c. Systematic risk.d. Diversification.1.What is the relationship between an investment’s risk and its return? Please provide examples if possible. 2. Difference between Institutional Investors and Individual Investors.According to the capital asset pricing model, assets with Lower; lower; unsystematic Higher; higher, unsystematic Lower; higher; unsystematic Higher; higher; systematic Higher; lower; systematic betas have expected returns because betas quantify the degree of risk. Please fill in the blank.
- A. Briefly explain three risk exposures that an analyst should report as part of anenterprise risk management systemB. Define market risk and the economic parameters considered when calculatingmarket risk.C. Explain the concept of ‘beta’ within the framework of the Capital Asset PricingModel (CAPM). Discuss the relevance of the covariance between assets returnsfor an investor wishing to diversify the risk of a portfolioDescribe the capital asset pricing model and explain the role of beta as a risk measurement tool.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.
- What does the capital asset pricing model (CAPM) calculate? a. The expected rate of return on an individual stock with respect to the risk-free rate of return b. The expected rate of return of an individual stock based on its overall risk c. The expected rate of return of an individual stock with respect to its market risk only d. The expected rate of return of an individual stock reflecting its financial risk Clear my choiceA. Briefly explain three risk exposures that an analyst should report as part of anenterprise risk management system.Page 4 of 10B. Define market risk and the economic parameters considered when calculatingmarket risk.C. Explain the concept of ‘beta’ within the framework of the Capital Asset PricingModel (CAPM). Discuss the relevance of the covariance between assets returnsfor an investor wishing to diversify the risk of a portfolioAccording to the capital asset pricing model (CAPM), which of the following statements is true (only of them is): (a) A share with more total risk should provide a higher return than one with less total risk. (b) A share with more idiosyncratic risk should provide a higher return than one with less idiosyncratic risk. (c) A share with more systematic risk should provide a higher return than one with less systematic risk. (d) Only a share with no risk (either systematic or idiosyncratic) should pay the risk free rate. (e) The expected market return is the appropriate discount rate of risky projects.