Q: Differentiate between price risk and reinvestment risk.
A: Price risk is the risk of decline of the price of the investment or an asset after the underlying…
Q: What is the market risk premium (rM - rRF)?
A: The market risk premium can be found using the CAPM Model As per CAPM Model, expected return = Risk…
Q: Define default risk
A: Default risk: It is the threat or risk of a bank taking on the plausibility that a borrower will not…
Q: Define Risk aversion
A: A risk averse saver is an investor who favors inferior returns with recognized risks somewhat than…
Q: What is the significance of the Value at Risk (VaR) method?
A: The question is based on the concept of Value at Risk (VaR). VaR is a statistical measure of risk in…
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: Briefly explain the fundamental trade-off between risk and return.
A: Fundamental trade-off among risk and return: Higher risk is related with larger chance of advanced…
Q: liquidity risk? Define briefly with an appropriate example
A: Risk means uncertainties in the future. There is a high risk involved in every investment because…
Q: o risk premiums influence financial decisions regarding risk and re
A: Step 1 A risk premium is an investment return that is expected to generate more than the level of a…
Q: How to compare other measures of risk with VaR(value at risk
A: VAR or Value at Risk is quantitative risk measurement in portfolio or firm this measures and also…
Q: What is reinvestment rate risk?
A: The reinvestment rate risk is the potential decline in the interest income that tends to be a result…
Q: What is the y risk-free investment?
A: Risk-free rate of return is the rate of return that an investor expects from an investment in any…
Q: Define the term Trade-Off between Risk and Reward?
A: Risk-Reward trade off refers to an investment principle which indicates higher the risk, higher is…
Q: Define the term exposure to financial risk?
A: The question is based on the concept of Financial risk and its exposure.
Q: what does Market's Risk premium measure
A: Market's Risk premium is an important term used in the capital asset pricing model equation (CAPM)…
Q: What is the risk premium?
A: CAPM is the method of calculating the expected return on investment. The formula to calculate the…
Q: What security provides a good estimate of the real risk-free rate?
A: A Treasury bill (T-Bill) is the short-term liability of US public debt supported for 1 year or…
Q: Basic Elements of Risk-Adjusted Returns?
A: Introduction: Risk adjusted return is a methodology for calculating and evaluating the returns on an…
Q: What is the difference between systematic risk and unsystematic risk? Give an example of each.
A: Risk: The possibility that the actual outcome in a situation will differ from the expected outcome…
Q: Describe the process of using the risk-adjusted discount rateto calculate the net present value?
A: Net present value (NPV) is the excess of present value of cash inflows over the present value of…
Q: What is risk return ratio?
A: Any susceptibility a corporation or organization has to factors that might affect profitability or…
Q: Explain the Trade-Off between Risk and Reward?
A: The trade-off means to lose one thing to achieve another thing. For example An organization is…
Q: What is market risk?
A: Investments in assets are subject to risks and uncertainty of returns Risks can be systematic or…
Q: How the risk and return trade-off can be applied in real life?
A: The risk-return tradeoff states that the return rises with an increase in risk. Investors use this…
Q: Describe relationship between risk and profitability.
A: Risk and profitability have direct relation. Lower the risk, lower is the return and Higher the…
Q: Calculate the risk neutral probability
A: Risk neutral probability = (er*Δt - d)/(u-d) r is risk free rate. Δt is time period between each…
Q: Why is the default F risk in a CMBS offering given more attention?
A: A default risk is the likelihood that the guarantor of a bond won't have the option to reimburse the…
Q: What is meant by the phrase natural hedging againstexchange rate risk?
A: Hedging is a mechanism that is used to eliminate or minimize the risk of loss that is associated…
Q: Define the term Risk-Adjusted Discount Rate Approach?
A: The estimation of the present value of cash for high-risk investment is known as a risk-adjusted…
Q: Can we consider Project Risk by Discount Rate?
A: The discount rate is an interest rate that is used in computing the present value of the future cash…
Q: Define the term risk?
A: Types of risk: Investment risk Market risk Inflation risk Business risk Liquidity risk
Q: Explain the difference between financial risk andbusiness risk.
A: Risk is referred as the chance of loss. An activity which leads to loss is termed as risk. The risk…
Q: Explain risk premium
A: An investor investing in a risky asset would demand a greater interest rate to compensate for the…
Q: Define risk-free asset?
A: Risk-free means that anything which does not have any kind of risk associated with it. They are free…
Q: What risk does Beta measure?
A: There are two types of risks: 1) Systematic risk 2) Unsystematic risk 1. Systematic risk : It is…
Q: What is the relationship between risk and return?
A: Risk return relationship: The association among risk and return is recognized as the risk-return…
Q: What is maturity risk premium (MRP)?
A: normally Maturity risk premium is the extra return that an investor will get for bearing the…
Q: escribes the relationship between risk and return.
A: Risk and return are directly related.
Q: risk with practical examples
A: Default risk is the risk that a lender takes on in the chance that a borrower will be unable to make…
Q: What does “investment risk” mean?
A: Risk is referred as uncertainty or loss. Financial risk is referred as the variability of actual…
Q: How can we Consider Project Risk by Discount Rate?
A: In corporate finance, a discount rate is the rate of return used to discount future cash flows back…
Q: Define default risk premium (DRP)
A: Generally, the interest rate charged is made up of the following components: Risk-Free Rate…
Q: Explain portfolio risk
A: Portfolio risk reflects the overall risk for a portfolio of investments. It is the combined risk of…
Explain Comparing Risk Premiums?
Risk premium is additional premium an investor achieves by investing in a riskier financial instrument than a risk free financial instrument.
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