Robert Shiller and Eugene Fama who were jointly awarded the Nobel Prize in Economics in 2013 for their work on asset prices strongly disagree on whether I. stocks can be over or under priced. II. investors are rational. III. asset bubbles exist. Multiple Choice Only II I, II, and III Only I I and II Only III
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Robert Shiller and Eugene Fama who were jointly awarded the Nobel Prize in Economics in 2013 for their work on asset prices strongly disagree on whether
I. stocks can be over or under priced.
II. investors are rational.
III. asset bubbles exist.
Multiple Choice
Only II
I, II, and III
Only I
I and II
Only III
Step by step
Solved in 3 steps
- Which of the following describes the attribute of a risk neutral investor? Select one: a. An investor that makes decisions based on the advice of financial planners. b. An investor that makes decisions based on the expected return of assets. C. An investor that makes decisions based on the credit rating of assets.An agent (a financial institution or individual financial investor) that has agreed to deliver a specific asset (as yet unpossessed) to another party at a future date has:A. taken a long position.B. hedged against risk.C. entered a forward transactionD. taken a short positionE. bought an option.How would you describe the relationship between a risky investment and the return on that investment (think stocks or retirement accounts)? a casual or limited relationship there is no relationship between the level of risk and the return you get on your investment a direct or positively correlated relationship an inverse or negatively correlated relationship
- Explain the implication of conservatism considering that majority of investors are emotional.Select all of the following that are true regarding hedging: A. Hedging is risk mitigation through diversification. B. Hedging is the same as arbitirage since it acts in across markets C. Hedging increases the returns of an investment D. Buying an risky investment is an example of hedging Detailedly Explanation Please, Thank you!Suppose Caroline is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds.CombinationFraction of Portfolio in Diversified StocksAverage Annual ReturnStandard Deviation of Portfolio Return (Risk)(Percent)(Percent)(Percent)A 0 1.50 0B 25 3.00 5C 50 4.50 10D 75 6.00 15E 100 7.50 20There is a relationship between the risk of Caroline's portfolio and its average annual return.Suppose Caroline currently allocates 75% of her portfolio to a diversified group of stocks and 25% of her portfolio to risk-free bonds; that is, she chooses combination D. She wants to reduce the level of risk associated with her portfolio from a standard deviation of 15 to a standard deviation of 5. In order to do so, she must do which of the following? Check all that apply. Sell some of her stocks and use the proceeds to purchase…
- Investors have different preferences with regards to the risk: they can be risk averse, risk neutral and risk seeking. What do we mean by risk averse, risk neutral, and risk seeking?What is covariance, and why is it important in portfolio theory?If investors want portfolios with small risk, should they look for investments that have positive covariance, have negative covariance, or are uncorrelated? Does a portfolio formed from the mix of three investments have more risk than a portfolio formed from two?
- Consider the following statements: If dividends are taxed more heavily than capital gains, then investors: I. Should pay more for stocks with low dividend yields. II. Should pay more for stocks with high dividend yields. III. Should pay the same for stocks with high or low dividend yields. IV. Should accept a lower pre-tax rate of return from stocks with high dividend yields. V. Should accept a lower pre-tax rate of return fróm stocks with low dividend yields. Which of the statements is true? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. Il only a Il only I and IV only I and V only I only eThe relationship between a bond and its price is easier to determine than the relationship between a stock and its price.True or FalseOption Premium Will Change With Changes in: A. The Underlying Asset AND The creation of a new Distribution based on how you personally feel B. The Meanness of the traders AND The granularity of the Underlying Distribution C. The Mean of the Underlying Distribution AND The Size of the Underlying Distribution D. the ask price demanded by the seller