According to the theory of the Capital Asset Pricing Model (CAPM), total variance can be broken into two components, systematic variance and idiosyncratic variance. Which of the following events would be considered the most diversifiable according to the theory of the CAPM?
An investor bought two fixed-coupon bonds issued by the same company, a zero-coupon bond and a 7% pa semi-annual coupon bond. Both bonds have a face value of $1,000, mature in 10 years, and had a yield at the time of purchase of 8% pa.
A few years later, yields fell to 6% pa. Which of the following statements is correct? Note that a capital gain is an increase in price.
Question 237 WACC, Miller and Modigliani, interest tax shield
Which of the following discount rates should be the highest for a levered company? Ignore the costs of financial distress.
Question 584 option, option payoff at maturity, option profit
Which of the following statements about European call options on non-dividend paying stocks is NOT correct?
Which of the below formulas gives the payoff at maturity ##(f_T)## from being short a future? Let the underlying asset price at maturity be ##S_T## and the locked-in futures price be ##K_T##.
Question 657 systematic and idiosyncratic risk, CAPM, no explanation
A stock's required total return will decrease when its:
An investor owns a portfolio with:
- 80% invested in stock A; and
- 20% invested in stock B.
Today there was a:
- 10% rise in stock A's price; and
- No change in stock B's price.
No dividends were paid on either stock. What was the total historical portfolio return on this day? All returns above and answer options below are given as effective daily rates.
Question 920 SML, CAPM, Sharpe ratio, Treynor ratio, Jensens alpha, no explanation
Over-priced assets should NOT: