19.The slope of the SML is determined by the value of market risk premium.a. Trueb. FalseThe SML relates required returns to firms' systematic (or market) risk. The slope andintercept of this line can be influenced by managerial actions.20.a. Trueb. False

Answered: 19. The slope of the SML is determined…

Business

Finance

19. The slope of the SML is determined by the value of market risk premium. a. True b. False

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter11: Risk-adjusted Expected Rates Of Return And The Dividends Valuation Approach

Section: Chapter Questions

Problem 5QE

See similar textbooks

Related questions

Q: Suppose rRF = 9%, ľM = 14% and b; = 13 What is r;, the required rate of return on Stock i?

A: Given: Risk free return (rRF)=9%Market returnrM=14%Beta coefficient(bi)=13

Q: 17- Which statement is true regarding the capital market line (CML)? a) The CML always has a…

A: Capital Market Line consists of portfolios that combine the risk and return. It assumes that there…

Q: If a security is underpriced (i.e., intrinsic value > price), then what is the relationship…

A: Intrinsic value of a security is the fair value based on the assessment of its fundamentals and…

Q: The risk-free rate of return can be thought of as consisting of ____ and ____. a. unanticipated…

A: The theoretical rate of return for an investment with no risk is known as the risk-free rate of…

Q: Which of the following statements about expected rate of return is most correct? The weighted…

A: EXPECTED RETURN = RISK FREE RATE + BETA X MARKET RISK PREMIUM.

Q: When would I use the arithmetic average risk premium (as opposed to the geometric risk premium)?

A: Your answer: The arithmetic average risk premium is used when the returns are not reinvested and…

Q: 7. The utility score a typical investor would assign to a particular portfolio, other things equal,…

A: The utility score of an investor depends on return and total risk. The Capital Market Line shows the…

Q: Write a general expression for the yield on anydebt security (rd) and define these terms: real…

A: The real risk-free rate of interest: It is risk-free interest after inflation rate alteration. Let's…

Q: 1. The diversifiable risk of a portfolio: a. Is correlated with systematic risk. b. Can be made…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Market rate of return Risk premium Risk-free rate of return Systematic Risk (Beta) Return (%)

A: Security market line (SML) is a graphical representation of the expected rate of return of assets at…

Q: ) What does the single index model estimate? B) What is the market risk premium? C) What does Beta…

A: A single index model simplifies security analysis by estimating the expected return on security…

Q: Fama and French three factor model is based on market risk premium factor and two other factors. A)…

A: “Since you have posted multiple questions, we will solve first three subparts for you. To get…

Q: Which of the following is/are an examples of unsystematic risk of a stock O a Political risk…

A: Operating Risk

Q: 13. The slope of the security market line is A. equal to one. B. beta. C. market risk premium. D.…

A: Note : As per the bartelby guidelines only first part will be answered. Explanation : In simple…

Q: 1) The type of the risk that can be eliminated by diversification is called A) market risk. B)…

A: Risk is the possibility of happening of events that is against the estimation of investors. If the…

Q: If I have that the standard estimator of the volatility parameter is 0.2491, how can I estimate the…

A: The geometric Brownian motion (BM), in stock prices is given by the relationship: S(t) =…

Q: Define the real risk-free rate (r*). What security canbe used as an estimate of r*? What is the…

A: Answer: Real risk-free return: Real risk-free return is nothing but a minimum rate of return…

Q: equals the slope of the security market line: one. beta. the market risk premium. the expected…

A: Security refers to the financial asset which doesn’t have any real value like golds and other metals…

Q: Beta is which of the following: A) standard deviation. B) total risk. C) Beta is the relationship…

A: option C is correct Beta is the relationship which is between an investment's return, and the…

Q: 1. Risk free rate represents: a. The market rate of return b. The rate provided by long term…

A: 1. Risk free rate is the rate which is expected by investor with no risks.

Q: arket's Risk premium measures Select one: a. The market return plus the risk free rate. b. The…

A: The market risk premium represents the market participants demand extra return by increasing the…

Q: The term structure of interest rates is related to the ____ risk premium.

A: Default risk premium is a type of risk premium which compensates the investor for the risk that…

Q: 14. Risk free asset, the market, and stock X have the expected returns of 2%, 8%, and 12%…

A: The expected rate of return of the stock based on the risk involved in the stock is given by the…

Q: Is the following statement correct, wrong or partially correc? Why? "If the volatility of Stock A is…

A: This statement is CORRECT.

Q: 4. What are the various types of risk intrinsic to fixed-income portfolios?

A: Fixed income portfolios include investments that provide periodic interest at a fixed rate. Fixed…

Q: hanging the market risk premium A. Changes neither the y-intercept nor the slope of the security…

A: The market risk premium is the variations among the expected return on a market portfolio and the…

Q: What is a risk measure? a Alpha b Required return on the market portfolio c Standard deviation of…

A: Risk measures are factual measures that are chronicled indicators of speculation hazard and…

Q: choose which one ? 3.Assume CAPM holds. What is the correlation between an efficient portfolio and…

A: The question is related to Portfolio Management. The details are given.

Q: b) Give a graphical example to present the positioning of. E Systematic risk E Risk free rate of…

A: Risk is the uncertainty associated with an investment. The investor receive higher return to…

Q: 24. is the risk of a decline in the value of a security or an investment portfolio excluding a…

A: Portfolio refers to the collection of all individual securities or investments held by a person or…

Q: A stock's risk premium is equal to the: expected market risk premium times beta. expected market…

A: In the given question we are given four options regarding stock's risk premium and we need to select…

Q: Question 7 What is the other name for fim-specific risk? O Systematic risk O Market risk O Micro-cap…

A: Risk includes the likelihood of losing some or all of the original investment. Business risks refer…

Q: Explain what is meant by beta. What risk does beta measure? What is the market return? How is the…

A: Beta is measure of risk and volatility of stock.

Q: Which one of the following statements is correct? Group of answer choices The lower the average…

A: Risk premium: It is the difference between the expected returns and risk-free market rates. Correct…

Q: What does the total risk consist of? What kind of risk is eliminated with portfolio diversification

A: Without a proper understanding of risk, investment planning is almost impossible. Risk occurs due to…

Q: Which statement is true? Multiple Choice ___ The larger the standard deviation, the lower the…

A: Standard deviation :— Standard Deviations is a basic mathematical concepts that measures volatility…

Q: Portfolio risk is comprised of risk risk. Select one: O a. firm-specific; plus diversifiable b.…

A: Portfolio are created to diversify firm specific or unsystematic risk. Risk which cannot be…

Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

19.
The slope of the SML is determined by the value of market risk premium.
a. True
b. False
The SML relates required returns to firms' systematic (or market) risk. The slope and
intercept of this line can be influenced by managerial actions.
20.
a. True
b. False

Expert Solution

Step 1

“Since you have asked multiple questions, we will solve the first question for you. If you want any specific question to be solved then please specify the question number or post only that question.”

Step by step

Solved in 2 steps

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

What 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 assumed
What does beta represent? Multiple Choice Beta is a measure of covariance standardized by the variance of the market. This adjusts the risk of the firm to be relative to the risk of the market. Beta is the extra income earned on an investment that cannot be explained by systematic risk or unsystematic risk. Beta is related to the return on risk-free assets. Beta is always positive or O, it cannot be negative because stock prices cannot be negative.
The risk associated with the overall market is referred to as _____ risk. a. unsystematic b. diversified c. portfolio d. systematic
Unsystematic risk: is compensated for by the risk premium. is measured by standard deviation. is related to the overall economy. can be effectively eliminated by portfolio diversification. is measured by beta.
Using examples, explain how firms are affected by both systematic and firm-specific risk. What is the risk premium?
Which of the following is not related to overall market variability. I am not satisfy give downvote A•Financial risk B•Interest rate risk C•Purchasing power risk D•Market risk
Which of the following statements regarding unsystematic risk is accurate? Multiple Choice It is measured by beta. It is compensated for by the risk premium. It can be effectively eliminated by portfolio diversification. It is measured by standard deviation. It is related to the overall economy.
What assumption about risk-adjusted techniques for measuring performance poses a potential problem? A. Portfolio risk is constant overtime B. Returns are normally distributed C. Mean reversion D. None of the options are correct E. Lognormal outcome of prices
How does the risk return trade-off relate to the financial manager's main goal?
In the context of the Capital Asset Pricing Model (CAPM), the relevant measure of risk is A. standard deviation of returns. B. beta. C. variance of returns. D. unique risk.
A "risk-premium" is the difference between ___________________________ . A) the variance of a stock's returns compared to variance of the market's returns B) systematic and unsystematic risks C) market and firm-specific risks D) an asset's expected return and the risk-free rate
The underlying assumptions of technical analysis are that A.price move in predictable patterns B. Market value is determined by market news C. Investors are rational