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1. It was explained that it is better for investors to have part of their money invested in a risk-free asset. Remember that the return (reward) to risk ratio from the new efficiency frontier with the risk-free asset (CML) is better than from the old efficiency frontier with no risk-free asset. Explain why this argument makes financial sense in a risk-return tradeoff context and give an example of a risk-free asset which most of you likely hold. Limit your answers to no more ten sentences.
2. If investors become more jittery (more risk-averse) about investing in the stock markets based on new growth fears about the U.S. and global economies, then what will happen to current stock prices and expected stock returns according to the predictions of the Capital Asset Pricing Model (CAPM)? Limit your answers to no more twelve sentences
3. If you invest your entire capital in a biotechnology sector mutual fund or biotech exchange traded fund (ETF) with 50 biotech stocks in each fund, then you would have eliminated all of the company-specific risks and your portfolio will be almost fully diversified. Explain whether or not this is a valid diversification argument according to the discussion in Chapters 6 and 25. Limit your answers to no more ten sentences.
4. Also, some may describe CAPM in a simple, non-technical way that it rewards investors for "waiting and worrying about their investments". Discuss what CAPM variables may correspond to the waiting part and worrying part of your invested money. Limit your answers to no more twelve sentences.
Explain the concept of constructive dividends. Give examples.
Distinguish between the different types of costs that were examined this week, such as sunk costs, opportunity costs, and outlay costs. [please also mention other costs that are not listed]
Risk and Return and the CAPM.
Two brothers each open IRAs in 2009 and plan to invest $3,000 per year for the next 30 years. John makes his first deposit on January 1, 2009, and will make all future deposits on the first day of the year. Bill makes his first deposit on December..
mcbean inc. reported net income of 300000 for the year ended december 31 2009. mcbean inc. had 50000 shares of common
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