The maximum rate of return needed to induce an investor to purchase or hold a security is referred to as the investor's required rate of return. OTRUE. FALSE
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- What type of security can be used to minimize both price risk and reinvestment riskfor an investor with a fixed investment horizon? Does this security protect the realpayoff? Explain.What happens to the price and return of a security when investors recognize it as undervalued? Explain.If a security is underpriced (i.e., intrinsic value > price), then what is the relationship between its market capitalization rate and its expected rate of return?
- An increase in the riskiness of a particular security would NOT affect: Select one: A. The risk premium for that security B. The premium for expected inflation C. The total required return for the security D. Investors' willingness to buy the securityDetermine how the appropriate yield to be offered on a security is affected by a higher risk-free rate. Explain the logic of this relationship. . Determine how the appropriate yield to be offered on a security is affected by a higher default risk premium. Explain the logic of this relationship.What is the relation between the expected rate of return and the required rate of return as they pertain to the fair market price and the current market price of a security?
- The market efficiency hypothesis claims that, as a rule, the market value and intrinsic value of a security are equal. True False.The no-arbitrage price of Security C?Differentiate between “buying a security on a margin” and “selling a security short”. When would an investor consider using each of these strategies?
- Explain how knowing the standard deviation of a security’s historical returns increases an investor’s understanding of that security’s expected future performance.The value of a security: a. Decreases as the investor’s planned holding period increases. b. Could increase or decrease as the investor’s planned holding period increases. c. Does not depend on the investor’s planned holding period. d. Increases as the investor’s planned holding period increases.1. If an investor has unique needs and does not care about liquidity, which contract is right for them: future or forward?
