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suter [353]
2 years ago
6

describe how adding a risk-free security to modern portfolio theory allows investors to do better than the efficient frontier. A

dditionally, explain how might the magnitude of the market risk premium impact people's desire to buy stocks?
Business
1 answer:
kondaur [170]2 years ago
7 0

Answer: Modern portfolio theory takes this idea even further. It suggests that combining a stock portfolio that sits on the efficient frontier with a risk-free asset, the purchase of which is funded by borrowing, can actually increase returns beyond the efficient frontier.

Risk premium is defined as excess return over risk free rate by taking extra risk. A risk-free asset has zero risk, so risk premium on these assets is zero. As risk level of investment increases, risk premium on investment also increases.

The market risk premium is the difference between the expected return on a market portfolio and the risk-free rate. The market risk premium is equal to the slope of the security market line (SML), a graphical representation of the capital asset pricing model (CAPM). CAPM measures required rate of return on equity investments, and it is an important element of modern portfolio theory and discounted cash flow valuation.

Explanation:

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When firms are said to be price takers, it implies that if a firm raises its price: a. buyers will go elsewhere. b. buyers will
MatroZZZ [7]

Answer:

The correct answer is a. buyers will go elsewhere.

Explanation:

This situation occurs when there is competition, that is, other businesses that offer the same or similar products as those of a particular company. In this scenario, the potential buyer will notice the difference according to their previous experiences and will find a way to acquire products from another brand that offer the same satisfaction as the product that rose in price. You must be very cautious with this practice, since it can end up damaging the operation, and in the worst case, leading to bankruptcy.

3 0
3 years ago
Identify which of the following statements is true.
JulijaS [17]

Answer:

A.

Explanation:

Organizational expense amortized over fifteen years for purposes of determining taxable income results in an upper adjustment in the initial years to book income on the Schedule Minus−1 when the expense is being amortized over ten years for book income purposes.

4 0
3 years ago
The Venoid Corporation has an annual cash inflow from operations from its investment in a capital asset of​ $23,000 (excluding​
statuscvo [17]

Answer:

$80,500

Explanation:

Data provided as per the question

Capital asset = $23,000

Number of year = 5

Income tax rate = 30%

The computation of cash inflow from operations is as shown below:-

Before tax  = capital asset × number of year

= $23,000 × 5

= $115,000

Cash inflow from operations = Before tax × (1 - Income tax rate)

= $115,000 × (1 - 0.3)

= $115,000 × 0.7

= $80,500

3 0
3 years ago
PLEASE HELP! IN A TEST! A salesperson may sell from a distance except when it involves _____.
julia-pushkina [17]

Answer: B.) Contacting people who have opted out of receiving sales messages

Explanation:

A p E x

8 0
3 years ago
A business buys motors that it uses to make blenders and mixers. The motors are an example of?
Levart [38]

Answer:

components

Explanation:

Components are goods used as materials in manufacturing other products. They are finished products in the real sense but are used as parts in making other products. Components are usually by an original equipment manufacturer and sold to other manufacturing companies or consumers as spare parts.

Motors are complete goods manufactured by an original equipment manufacturer. The manufacturer sells the motors as components to be used in the production of blenders.  The motors are, therefore, material used in the making of blenders.

8 0
3 years ago
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