Questions from Corporate Finance

Q: Why is beta a measure of market risk for a security?

Why is beta a measure of market risk for a security?

Q: Assuming the CAPM holds, if the expected return on a diversified

Assuming the CAPM holds, if the expected return on a diversified portfolio lies above the CML, should an investor buy or sell the portfolio?

Q: What is a characteristic line, and why is it useful?

What is a characteristic line, and why is it useful?

Q: What is the slope of the CML, and why can it

What is the slope of the CML, and why can it be reviewed as the market price of risk for efficient portfolios according to the CML?

Q: If a security’s correlation with the market return increases, will its

If a security’s correlation with the market return increases, will its beta get larger or smaller?

Q: If the market risk premium increases will securities become over or under

If the market risk premium increases will securities become over or under valued?

Q: For the following decisions, indicate if they are consistent with risk

For the following decisions, indicate if they are consistent with risk aversion or risk loving. a. Buying a lottery ticket b. Buying fire insurance on your house c. Jaywalking on St. Catherine Street...

Q: FinCorp Inc. conducted an extensive analysis of the economy and concluded

FinCorp Inc. conducted an extensive analysis of the economy and concluded that the probability of a recession next year is 30 percent, the probability of a boom is 45 percent, and the probability of a...

Q: Today, you observe the market portfolio has an expected return of

Today, you observe the market portfolio has an expected return of 13 percent, with a standard deviation of 7 percent. The risk‐free rate is 2 percent. If only the risk‐free rate increases (i.e., there...

Q: State three of the assumptions underlying the capital asset pricing model (

State three of the assumptions underlying the capital asset pricing model (CAPM).