When, if ever, will the geometric average return exceed the arithmetic average return for a given set of returns? Never When the set of returns includes only risk-free rates. When all of the rates of return in the set of returns are equal to each other.
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When, if ever, will the geometric average return exceed the arithmetic average return for a given set of returns?
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- The probability distribution of a less risky return is more peaked than that ofa riskier return. What shape would the probability distribution have for (a)completely certain returns and (b) completely uncertain returns?Supposing the return from an investment has the following probability distribution Return Probability R (%) 8 0.2 10 0.2 12 0.5 14 0.1 Required: What is the expected return of the investment? What is the risk as measured by the standard deviation of expected returns?We believe that the single factor model can predict any individual asset’s realized rate of return well. Both Portfolio A and Portfolio B are well-diversified: ri = E(ri) + βiF + Ei, where E(ei) = 0 and Cov(F, i) = 0 A B β 1.2 0.8 E(r) 0.1 0.08 (1) What is the rate of return of the risk-free asset? (2) What is the expected rate of return of the well-diversified portfolio C with βC = 1.6, which also exists in the market? (3) A fund constructs a well-diversified portfolio D. Studies show that βD = 0.6. The expected rate of return of D is 0.06. Is there an arbitrage opportunity? If so, construct a trading strategy to earn profits with no risk. If not, why?
- The expected rate of return of an investment ________. a. equals one of the possible rates of return for that investment b. equals the required rate of return for the investment c. is the mean value of the probability distribution of possible returns d. is the median value of the probability distribution of possible returns e. is the mode value of the probability distribution of possible returnsWhat is the expected return of a zero-beta security?a. Market rate of return.b. Zero rate of return.c. Negative rate of return.d. Risk-free rate of return.According to the pure expectations theory, what would happen if long-term rateswere not an average of expected short-term rates?
- Which one of the following statements is correct? Group of answer choices The lower the average return, the greater the risk premium. The greater the volatility of returns, the greater the risk premium. The lower the volatility of returns, the greater the risk premium. The risk premium is not affected by the volatility of returns. The risk premium is unrelated to the average rate of return.We know that the geometric average (time-weighted return) on a risky investment is always lower than the corresponding arithmetic average. Can the IRR (the dollar-weighted return) similarly be ranked relative to these other two averages?A forward rate is the mathematical expectation of a future spot rate in risk neutral world. O True False
- The probability distribution of a less risky expected return is more peaked than that of ariskier return. What shape would the probability distribution be for (a) completely certainreturns and (b) completely uncertain returns?Can the standard deviation of a portfolio be zero? Explain your answer.How is it possible to achieve a higher rate of return without significantlyincreasing risk?