s risk aversion increases A. a firm's beta will increase. B. investors' required rate of return will increase. C. a firm's beta will decrease. D. investors' required rate of return will decr
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As risk aversion increases
A. a firm's beta will increase.
B. investors' required
C. a firm's beta will decrease.
D. investors' required rate of return will decrease.
Step by step
Solved in 2 steps
- Give typing answer with explanation and conclusion The market risk premium: Decreases with the risk aversion of investors in the market Increases with the risk aversion of investors in the market Decreases with the egree of risk of the average potential risky investment Could be negativeAs risk aversion increases A. a firm's beta will increase. B. investors' required rate of return will increase. C. a firm's beta will decrease. D. investors' required rate of return will decrease.A reduction in the willingness of investors to take on risk would have what effect on the Security Market Line? A.no effect B.rotate the SML counter clockwise around the risk-free rate C.rotate the SML clockwise around the risk-free rate D.shift the SML upward, parallel to its previous location
- An increase in investor risk aversion would be expected to: Increase the Risk-Free Rate while Decreasing the Expected Return on the Market Portfolio. Increase the Risk-Free Rate while Increasing the Expected Return on the Market Portfolio. Decrease the Risk-Free Rate while Decreasing the Expected Return on the Market Portfolio. Decrease the Risk-Free Rate while Increasing the Expected Return on the Market Portfolio. There is not enough information to determine how the Risk-Free Rate and Expected Return on the Market Portfolio will change. None of the above answers is correct.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 assumedWhen risk grows while an investor's return remains constant, that investor is said to be a. Risk-Neutral b. Risk-Averse c. Risk-seeking d. Risk-Aware
- The additional return over the risk-free rate needed to compensate investors for assuming an average amount of risk. a. Market Risk Premium b. Risk-free rate С. Stock's beta O d. Security Market Line e. Required Return on StockAssume that the risk-free rate remains constant, but the market risk premium declines. Which of the following is most likely to occur? a. The required return on a stock with beta = 1.0 will not change. b. The required return on a stock with beta > 1.0 will increase. c. The return on "the market" will increase. d. The return on "the market" will remain constant. e. The required return on a stock with a positive beta < 1.0 will decline.7. Investment A has more risk than investment B; it has both a higher beta and a higher standard deviation. According to Financial Market theory: a. Investment A will pay a higher return than investment B next year b. Investors should sell investment A and purchase investment B c. Investment A will have a lower price than investment B d. Investment A will have a higher expected return than investment B
- When describing the attitude of investors towrds risk, which statement is correct? A.Investors may behave as though they are risk seekers for small investments B.For a risk-averse investor, the standard deviation of the return distribution is a relevant measure of risk C.Investors behave as though they are risk averse for investments of significant size D.All of the above3. The beta for the risk-free investment is closest to: A) 1. B) 0. C) Unable to answer this question without knowing the risk-free rate. D) Unable to answer this question without knowing the market's volatility.Question 2 a) Plot the Security Market Line (SML).b) Superimpose the CAPM’s required return on the SML.c) Indicate which investments will plot on, above and below the SML?d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph
