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suter [353]
3 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]3 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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yan [13]
<span>Auto insurance is needed primarily because of </span>potential liability claims.

If you don't have it and you don't have insurance, you have to fix your car out of your own money, as well as pay for repairs of other cars if it is proven that it was your fault.

7 0
4 years ago
What encourages people to buy shares in the ownership of a private limited company? (please if you can, give an explanation)
sertanlavr [38]
I think the main reason people buy shares of companies is to make money.
Explain:
their idea is to buy low value of things and sell high. for example, if i buy 100 shares of a company stock valued at 25$ each i will have made a total of 2,500$. if in the next few months the shares increase to $50, I can sell them for more, Like $5,000, This is doubling your investment.
Hope that helped
6 0
3 years ago
Bookmarks are shared between different browsers. <br><br> True <br> False
inessss [21]

the correct answer is false. i took the test and true was wrong. so false is correct


6 0
3 years ago
Read 2 more answers
Which of the following is not a concept related to explaining abnormal excess stock returns?A. January effect B. neglected-firm
Anastaziya [24]

The preferred stock effect is not a notion that can be used to explain abnormally high excess stock returns.

<h3>What is the preferred stock?</h3>

The term "stock" refers to a company's ownership or equity. Common stock and preferred stock are the two forms of equity. Preferred investors are entitled to more dividends or asset distributions than common stockholders. The specifics of each preferred stock vary depending on the issuance.

When it comes to dividends, preferred stockholders have a preference over ordinary stockholders, which typically yield more than common shares and might be paid monthly or quarterly. These dividends can be fixed or determined by reference to a benchmark interest rate, such as the London Interbank Offered Rate.

To learn more about stock, click

brainly.com/question/28235296

7 0
1 year ago
Domain name extensions occur _____ the period in the domain name.
Shalnov [3]

Answer:

after

Explanation:

Domain name extension is a TLD or top level domain.

For google.com the domain name extension is 'com'

This comes after the period.

8 0
4 years ago
Read 2 more answers
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