1) DFA’s investment strategy is based on their belief in the principle that stock market is efficient. They attempt to match a broad-based‚ value-weighted small-stock index and position themselves in the market as a passive fund manager that still claimed to add value by capturing specific dimensions of risks identified by financial science. DFA’s investment strategy incorporates elements of both passive and active management. It is passive in the sense that like many other index managers‚ it
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Portfolio return and SD ( ST8-1‚ prob. 8-13) * Know the definition and meaning to CAPM‚ including beta‚ market risk premium and asset risk premium * Understand beta’s effect on risk‚ return and share price * Know the definition of diversifiable and nondiversifiable risk and examples of each * Know definition and equation for Real‚ risk free and nominal rate of interest * Calculation the price and YTM of bonds (prob 6-17 and Prob 6-21)‚ both with annual and semi-annual rates of
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Finance Ch. 8 1)Most manager are risk-averse‚ since for a given increase in risk they require an increase in return True 2) IF a person required return decreases for an increase in risk that person is said to be Risk-Seeking 3.) Risk aversion is the behavior exhibited by managers who require a greater than proportional _________ (a) increase in return‚ for a given decrease in risk. (b) increase in return‚ for a given increase in risk. (c) decrease in return‚ for a given increase in risk
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(2011)‚ in finance‚ CAPM is used to determine a theoretically appropriate required rate of return of an asset‚ if that asset is to be added to an already well-diversified portfolio‚ given that asset’s non-diversifiable risk. The model takes into account the asset’s sensitivity to non-diversifiable risk (also known as systematic risk or market risk)‚ often represented by the quantity beta (β) in the financial industry‚ as well as the expected return of the market and the expected return of a theoretical
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The Importance of the Risk and Return Balance Name BUS 401 Principles of Finance Instructor Date Can we ever have any return without some type of risk? It is not possible to have any return without some type of risk. This is because all kinds of investments are characterized by a certain risk. The only possible scenario is to have a return with minimal risk. In the investment sector‚ government securities such as treasury bonds are considered as having minimal risk. However‚ investing in such
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would be represented by a single point on the SML. Stock Y‚ with the higher standard devia¬tion‚ has more diversifiable risk‚ but this risk will be eliminated in a well-diversified portfolio‚ so the market will compensate the investor only for bearing market or relevant risk. In practice‚ it is possible that Stock Y would have a slightly higher required return‚ but this pre¬mium for diversifiable risk would be small. 7-2 a. The regression graph is shown above. b will depend on students’ freehand
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1. What is diversifiable risk? It is a part that can be eliminated by diversification . 2.What is preferred stock? Stock with dividend priority over common stock‚ normally with a fixed dividend rate‚sometime without voting rights. 3.What is risk premium? The excess return required from an investment in a risky asset over that required from an risk-free investment. 4.What is principle of diversification? Spreading an investment across a number of asset will eliminate some‚ but not all‚of the
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uncertain that the anticipated return will not be achieved 3. Diversifiable Risk – risk associated with individual events that affect a particular asset: • Firm – specific risk that’s reduced through the construction of diversified portfolios 4. Business Risk – risk associated with the nature of a business 5. Financial Risk – risk associated with the types of financing used to acquire assets 6. Non-diversifiable risk (systematic risk) – risk associated with fluctuations in securities
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systematic; unsystematic B. unsystematic; systematic C. total; unsystematic D. total; systematic E. asset-specific; market 23. The risk premium for an individual security is based on which one of the following types of risk? A. Total B. Surprise C. Diversifiable D. Systematic E. Unsystematic 27. Candy and More stock is expected to produce the following returns given the various states of the economy. What is the expected return on this stock? A. 7.89 percent B. 8.56 percent C. 9.43 percent D. 9.90
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“A STUDY OF INVESTMENT PREFERENCE IN MUTUAL FUNDS” (With special reference to Birla sun life mutual fund) PROJECT REPORT SYNOPSIS SUBMITTED FOR THE DEGREE ON MASTER OF COMMERCE IN FINANCE GROUP H.N.B GARHWAL UNIVERSITY
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