EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 6, Problem 7CP
Summary Introduction
To select: The term which caused the change from straight to kinked capital allocation line is to be determined.
Introduction : The borrowing rate is the rate at which the money is borrowed while the lending rate is applied on the money which is lend by the bank.
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Students have asked these similar questions
according to capm the expected return on equity includes a reward for:
a. market risk and specific risk
b. Specific risk only
c. Time value of money and market risk
d. Diversification and portfolio risk
e. Time value of money and specific risk
SITIcation.
24. In the capital asset pricing model, the beta coefficient is a measure of
index of the degree of movement of an asset's return in response to a change in
risk and an
A) diversifiable; the prime rate
B) nondiversifiable; the Treasury bill rate
C) diversifiable; the bond index rate
D) nondiversifiable; the market return
5.
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The return and volatility of ________ portfolios are often lower than those of other asset types
a.
Credit Investing
b.
Market Analysis
c.
Fixed Income
d.
Rate and Return
Chapter 6 Solutions
EBK INVESTMENTS
Ch. 6.A - Prob. 1PCh. 6.A - Prob. 2PCh. 6 - Prob. 1PSCh. 6 - Prob. 2PSCh. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Prob. 5PSCh. 6 - Prob. 6PSCh. 6 - Prob. 7PSCh. 6 - Prob. 8PS
Ch. 6 - Prob. 9PSCh. 6 - Prob. 10PSCh. 6 - Prob. 11PSCh. 6 - Prob. 12PSCh. 6 - Prob. 13PSCh. 6 - Prob. 14PSCh. 6 - Prob. 15PSCh. 6 - Prob. 16PSCh. 6 - Prob. 17PSCh. 6 - Prob. 18PSCh. 6 - Prob. 19PSCh. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Prob. 23PSCh. 6 - Prob. 24PSCh. 6 - Prob. 25PSCh. 6 - Prob. 26PSCh. 6 - Prob. 27PSCh. 6 - Prob. 28PSCh. 6 - Prob. 29PSCh. 6 - Prob. 1CPCh. 6 - Prob. 2CPCh. 6 - Prob. 3CPCh. 6 - Prob. 4CPCh. 6 - Prob. 5CPCh. 6 - Prob. 6CPCh. 6 - Prob. 7CPCh. 6 - Prob. 8CPCh. 6 - Prob. 9CP
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- In general, the the correlation between asset returns, the the risk reduction that investors can achieve by diversifying. O a. lower; lower O b. greater; greater O c. lower; greater d. greater; lowerarrow_forwardAs the level of risk increases, the corresponding cost of capital (i.e. the return) must _____________________ . a) go up b) go down c) stay the same.arrow_forwardFor each of the cases shown in the following table, use the capital asset pricing model (CAPM) to find the required return and explain your answer. Case Risk-free rate Market return Beta (%) (%) 8 A 5 1.3 В 8. 13 0.9 C 9 12 -0.2 D 10 15 1.0 E 10 0.6arrow_forward
- Which of the following decision criteria is the easiest to use and very popular among investors? O Payback period. O Internal rate of return. O Average accounting return. Net present value. O Discounted return on investment.arrow_forwardWhat 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 assumedarrow_forwardThe Capital Asset Pricing Model (CAPM) asserts that an asset’s expected return is equal to the risk-free rate plus a risk premium for: a. Volatility b. Systematic risk c. Non-systematic risk d. Diversification e. Marginal utility of consumptionarrow_forward
- When a lump sum investment shows growth, even if the interest rate stays low, it is known as.. 1- discount rate 2-opportunity cost 3-return on investement 4-compounding growtharrow_forwardManipulating CAPM Use the basic epuation for the capital asset model (CAPM) to work each of the followig problems. a. Find the required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively.b. Find the risk-free rate for a firm with a required return of 14.363% and a beta of 1.07 when the market return is 14%c. Find the market return for an asset with a required return of 9.045% and a beta of 1.57 when the risk-free rate is 3%d. Find the beta for an asset with a required return of 10.255% when the risk-free rate and market return are 6% and 9.7%, respectively.arrow_forwardAn efficient capital market is best defined as a market in which security prices reflect which one of the following? Multiple Choice A Current inflation B A risk premium C All available information D The historical arithmetic rate of return E The historical geometric rate of returnarrow_forward
- Manipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.59 when the risk-free rate and market return are 7% and 12%, respectively. b. Find the risk-free rate for a firm with a required return of 10.925% and a beta of 0.84 when the market return is 12%. c. Find the market return for an asset with a required return of 9.417% and a beta of 0.31 when the risk-free rate is 8%. d. Find the beta for an asset with a required return of 19.559% when the risk-free rate and market return are 10% and 17.9%, respectively. a. The required return for an asset with a beta of 1.59 when the risk-free rate and market return are 7% and 12%, respectively, is %. (Round to two decimal places.) b. The risk-free rate for a firm with a required return of 10.925% and a beta of 0.84 when the market return is 12% is %. (Round to two decimal places.) c. The market return for an asset with a…arrow_forward1. The opportunity costs are related with: A) Inflation rate; B) Interest rate; C) Not doing something; 2. People prefer to receive cash: A) Sooner than later; B) Later than sooner; C) Doesn't matter when; 3. Financial decisions must be based on: A) Risk assessment; B) Time adjusted cash flows; C) Inflation assessment; 4. Future vale is equal: A) Initial investment X (1 + k)" ; B) Initial investment X (1+k.n); C) A+B 5. The term (1 + k)" is known as: A) Present value interest factor; B) Future value interest factor; C) Risk assessment factor; 1 (1+ p)" A) Present value interest factor; B) Future value interest factor; C) Risk assessment factor; 6. The term is known as: 7. A present value problem can involve: A) Series of future cash flows; B) Single future cash flow; C) A+B 8. Present value of series of future cash flow is presented in equation: n A) PV = CF₁ t=1 n B) PV = Σ t=1 1 (1+p)" CFt (1+p)" ; C) A+B 9. Cash flows directly attributed to the evaluating projects are known as: A)…arrow_forwardAccording to the Capital Asset Pricing Model, higher investment risk, however it is measured, translates into higher required rates of return. True Falsearrow_forward
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