For arbitrage strategies involving multiple share classes of ordinary stocks, which of the following arbitrage costs/risks is the LEAST important? O A. Direct trading costs (both current costs; and the uncertainty about future costs). OB. Systematic risk O C. Horizon risk and idiosyncratic risk OD. Short-selling costs (both current costs; and the uncertainty about future costs).

For arbitrage strategies involving multiple share classes of ordinary stocks, which of the following arbitrage costs/risks is the LEAST important? O A. Direct trading costs (both current costs; and the uncertainty about future costs). OB. Systematic risk O C. Horizon risk and idiosyncratic risk OD. Short-selling costs (both current costs; and the uncertainty about future costs).

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 12QTD

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According 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.
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a. What is the relationship between the expected return of a stock and its fair expected return? When is a stock underpriced, overpriced, or fairly priced?
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According to the capital asset pricing model (CAPM), fairly priced securities should have __________. Select one: a. A fair return based on the level of systematic risk. b. A beta of 1. c. A return equal to the market return. d. A fair return based on the level of unsystematic risk.
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