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Econ bitcoin exam 3

Terms in this set (25)

The relationship between expected return and riskiness of an asset is
higher risk, higher expected return
Theoretically, the expected return on a single asset is
the wieghted-by-probability average of all possible returns in all possible states of nature
Which of the following is a characteristic of bonds?
are sold for a price that varies inversely with the interest rate
Combining the Expected Utility Hypothesis with Quadratic Utility yields
preferences based on risk-return trade-offs.
Because of __________ correlation between μRF and μP, the relevant investment locus shifts from the __________ to the ___________.
Zero; Efficient Fronteir; Capital Market Line
The value of any investment is found by computing the
present value of all future cash flows
The Market Portfolio is the portfolio on the efficient Fronteir that is
None of the above.
Which of the following represents the basic present value relation?
PV = FV/(1+i)n
With an interest rate of 6 percent, the present value of $100 next year is approximately
$94
The Efficient Portfolios Frontier is curved because
of the non-linear relationship between individual asset risk and portfolio risk
What is the expected return on XYZ?
11%
Expected Utility Theory assumes that investors are
risk averse
The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today
present value
When deciding how much of each asset to include in your portfolio, if there are only two assets
All of the above.
The covariance between the risk free rate and the portfolio return is
zero
In the figure above, which point represents the optimal portfolio for the investor with preferences represented by the indifference curves shown?
C point on the curve
To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of
discounting the future.
In a single-index (or factor) model, the returns on a single asset are related to return on the risk-free rate and risk premium measured by
excess return on the market index
The return on an asset that delivers no interim cash flows can be calculated as,
rt = ln(Pt /Pt-1)
The standard deviation is a measure of asset or portfolio
risk.
The macroeconomic risk faced by all assets that cannot be diversified away is
systematic risk
An implication of the risk-free (RF) rate of return is that
σ2 RF = 0
The beta of an inidividual asset measures
how an individual asset return varies with the market portfolio return
The return on an asset can be dichotomized into two components;
current yield and capital gain.
The beta for the market portfolio is always
one
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