Financial Management - Study Mode

[#496] In calculation of betas, an adjusted betas are highly dependent on historical
Correct Answer

(A) unadjusted betas

Explanation

Solution: In calculation of betas, an adjusted betas are highly dependent on historical unadjusted betas. Betas calculated purely based on historical data are unadjusted betas. However, this beta estimate based on historical estimates is not a good indicator.

[#497] A curve which shows attitude towards risk just way reflected in return trade-off function is classified as
Correct Answer

(B) indifference curve

Explanation

Solution: A curve which shows attitude towards risk just way reflected in return trade-off function is classified as indifference curve. An indifference curve is a graph that shows a combination of two goods that give a consumer equal satisfaction and utility, thereby making the consumer indifferent.

[#498] In capital market line, risk of efficient portfolio is measured by its
Correct Answer

(A) standard deviation

Explanation

Solution: In capital market line, risk of efficient portfolio is measured by its standard deviation. The standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance.

[#499] Formula written as 0.67(Historical Beta) + 0.35(1.0) is used to calculate
Correct Answer

(B) adjusted betas

Explanation

Solution: Formula written as 0.67(Historical Beta) + 0.35(1.0) is used to calculate adjusted betas. The Adjusted Beta is an estimate of a security's future Beta. Adjusted Beta is initially derived from historical data, but modified by the assumption that a security's true Beta will move towards the market average, of 1, over time.

[#500] A model which regresses return of stock against return of market is classified as
Correct Answer

(B) market model

Explanation

Solution: A model which regresses return of stock against return of market is classified as market mode.