Question 271 CAPM, option, risk, systematic risk, systematic and idiosyncratic risk
All things remaining equal, according to the capital asset pricing model, if the systematic variance of an asset increases, its required return will increase and its price will decrease.
If the idiosyncratic variance of an asset increases, its price will be unchanged.
What is the relationship between the price of a call or put option and the total, systematic and idiosyncratic variance of the underlying asset that the option is based on? Select the most correct answer.
Call and put option prices increase when the:
The following table shows a sample of historical total returns of shares in two different companies A and B.
| Stock Returns | ||
| Total effective annual returns | ||
| Year | ##r_A## | ##r_B## |
| 2007 | 0.2 | 0.4 |
| 2008 | 0.04 | -0.2 |
| 2009 | -0.1 | -0.3 |
| 2010 | 0.18 | 0.5 |
What is the historical sample covariance (##\hat{\sigma}_{A,B}##) and correlation (##\rho_{A,B}##) of stock A and B's total effective annual returns?
Question 578 inflation, real and nominal returns and cash flows
Which of the following statements about inflation is NOT correct?
A company conducts a 10 for 3 stock split. What is the percentage increase in the stock price and the number of shares outstanding? The answers are given in the same order.
Question 720 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate
A stock has an arithmetic average continuously compounded return (AALGDR) of 10% pa, a standard deviation of continuously compounded returns (SDLGDR) of 80% pa and current stock price of $1. Assume that stock prices are log-normally distributed.
In 5 years, what do you expect the median and mean prices to be? The answer options are given in the same order.
You deposit money into a bank. Which of the following statements is NOT correct? You:
A British man wants to calculate how many British pounds (GBP) he needs to buy a 1 million euro (EUR) apartment in Germany. The exchange rate is 1.42 USD per GBP and 1.23 USD per EUR. What is the EUR 1 million equivalent to in GBP?
Which of the following statements about an asset’s standard deviation of returns is NOT correct? All other things remaining equal, the higher the asset’s standard deviation of returns:
Question 963 Bretton Woods, foreign exchange rate, foreign exchange system history, no explanation
Under the Bretton Woods System (1944 to 1971), currencies were priced relative to:
Question 978 comparative advantage in trade, production possibilities curve, no explanation
Arthur and Bindi are the only people on a remote island. Their production possibility curves are shown in the graph.
Assuming that Arthur and Bindi cooperate according to the principles of comparative advantage, what will be their combined production possibilities curve?
