Financial Management - Study Mode

[#731] Stock issued by company have higher rate of return because of
Correct Answer

(B) high book to market ratio

Explanation

Solution: Stock issued by company have higher rate of return because of high book to market ratio. A high ratio is preferred by value managers who interpret it to mean that the company is a value stock, that is, it is trading cheaply in the market compared to its book value.

[#732] Betas that are constantly adjusted to reflect changes in capital structure and firms operations are classified as
Correct Answer

(C) fundamental betas

Explanation

Solution: Betas that are constantly adjusted to reflect changes in capital structure and firms operations are classified as fundamental betas. Estimate of potential risk, accounting for various factors like company size, volatility, momentum, and such. It facilitates identifying potential risk of a company’s security using current and future (predicted) market-related and financial data.

[#733] Type of relationship exists between an expected return and risk of portfolio is classified as
Correct Answer

(B) linear

Explanation

Solution: Type of relationship exists between an expected return and risk of portfolio is classified as linear.

[#734] Capital market line reflects an attitude of investors towards risk which is considered as an/a
Correct Answer

(D) aggregate

Explanation

Solution: Capital market line reflects an attitude of investors towards risk which is considered as an aggregate. The capital market line (CML) represents portfolios that optimally combine risk and return. Capital asset pricing model (CAPM), depicts the trade-off between risk and return for efficient portfolios.

[#735] The risk that arises due to change in the purchasing power is called ?
Correct Answer

(D) Inflation risk

Explanation

Solution: The risk that arises due to change in the purchasing power is called Inflation risk. Inflation risk, also called purchasing power risk, is the chance that the cash flows from an investment won't be worth as much in the future because of changes in purchasing power due to inflation.