Pricing Theory and Multifactor Models of Risk and Return Multiple Choice Questions 1. ___________ a relationship between expected return and risk. A. APT stipulates B. CAPM stipulates C. Both CAPM and APT stipulate D. Neither CAPM nor APT stipulate E. No pricing model has found Both models attempt to explain asset pricing based on risk/return relationships. Difficulty: Easy 2. ___________ a relationship between expected return and risk. A. APT stipulates B. CAPM stipulates
Words: 4147 - Pages: 17
the following variables * Type : intermediate government or short-term corporate * Expense ratio: ratio of expenses to net sales * Fees: Sales charges * Return 2009: twelve months return in 2009 * Three-years return: annualized return 2007-2009 * Five-years return: annualized return 2005-2009 * Risk: risk of loss factor of the mutual fund (bellow average, average, above average) In order to do the analysis, we have used several representations of the data and computed different
Words: 1409 - Pages: 6
Alex Sharpe’s Portfolio 1. Returns and Risk Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest? S&P 500 Annualized Expected Return: 6.8920% S&P 500 SD (Annualized): 12.477% Reynolds Annualized Expected Return: 22.4980% Reynolds SD (Annualized): 32.446% Hasbro Annualized Expected Return: 14.2060% Hasbro SD (Annualized): 28.114% Reynolds
Words: 920 - Pages: 4
Mohamed Ahmed Zaki Nofal Submitted to: Dr.Tarek el Domiaty Modern portfolio theory Modern portfolio theory (MPT) is a theory of finance which attempts to maximize portfolio expected return for a given amount of portfolio risk, or equivalently minimize risk for a given level of expected return, by carefully choosing the proportions of various assets. Although MPT is widely used in practice in the financial industry and several of its creators won a Nobel memorial prize[1] for the theory
Words: 6257 - Pages: 26
Question 1 The T-bond return does not depend on the state of the economy because the interest payments will be made and the bond will be redeemed by the federal government, barring global disaster. The T-bond, since its return is independent of the state of the economy, is risk-free, but only in the nominal sense. An investor is “guaranteed” an 8.0 percent nominal return. However, the real realized return will depend on inflation over the next year. Thus, the real return, which counts most, is
Words: 2607 - Pages: 11
Lecture Handouts for Chapter 5 Chapter 5 is covered in lectures 31 and 32. Risk and Return The return from an investment is the change in market price, plus any cash payments received due to ownership, divided by the beginning price. The risk of a security can be viewed as the variability of returns from those that are expected. Measurement of Risk The expected return is simply a weighted average of the possible returns, with the weights being the probabilities of occurrence. The conventional
Words: 4121 - Pages: 17
calculate the projected return on the equity of a single company. CAPM is based on risk free rate, the expected return rate on the market and beta coefficient of a single portfolio and security. Re = Rf + β [E(Rm) - (Rf)] According to the formula, Re represents the Return on Equity, Rf is for the risk-free rate, E(Rm) denoted to expected rate of return on the market, and β is the beta coefficient and E(Rm) - Rf is the difference among the expected market rate of return and the risk-free rate, is known
Words: 1083 - Pages: 5
INTRODUCTION Getting the maximum return possible is the main focus in any market to every investor. But along with return, there comes risk. And in managing risk, every investor tries to keep it at minimum while trying to adhere to the targeted return. In doing so, investors have found that diversification of investment through portfolio investment can meet the investment goals in a better way than investing in a single security. Therefore, to make the maximum return at a given risk preference level, it is
Words: 3431 - Pages: 14
rate of return for any risky asset Assumptions of Capital Market Theory 1. All investors are Markowitz efficient investors who want to target points on the efficient frontier. Assumptions of Capital Market Theory 2. Investors can borrow or lend any amount of money at the risk-free rate of return (RFR). Assumptions of Capital Market Theory 3. All investors have homogeneous expectations; that is, they estimate identical probability distributions for future rates of return. Assumptions
Words: 1858 - Pages: 8
ADVANCED INVESTMENTS Risk & return A1. Agents prefer more over less (nonsatiation). A2. Agents dislike risk (are risk averse). How should investors, given their preferences, invest their money? (normative) What can we say about how the market and (how its participants) actually operates (and invest)? (descriptive) Both revolve around the risk/return relationship and interact: information about how markets work influences investment decisions, which influences the market in its turn
Words: 10578 - Pages: 43
