Your spouse works for Southwest Airlines and you work for a grocery store.
Is your company
or your spouses company likely to be more exposed to systematic risk?
Ans:Southwest Airlines is more exposed to systematic risk. Systematic risk
describes the movem
There are many aspects to health, health care, and health insurance which
must be examined from different perspectives. Health economics looks at
how we can get the most health most efficiently so as to ensure that we get
the most health
In the previous section we learned that increasing capital, both human and
physical, is the only way to create productivity growth in the long run. One
way to directly increase the amount of capital in an economy, also called
Returns for a stock
What does the historical relationship between volatility and return
tell us about investors attitude toward risk?
Ans:The historical relation between volatility and return tells us
that investors are risk-averse.
What is the reasoning
What is the relationship between risk and return for large portfolios? How are individual
Ans:When we plot the average return versus the volatility of each type of investment, we can
that the investments with higher volatility, m
What does the CAPM say about the required return of a security?
Ans:The CAPM simply says that the return we should expect on any
investment is equal to the riskfree
rate of return plus a risk premium proportional to the amount of s
How does the relationship between the average return and the historical
volatility of individual stocks differ from the relationship between the
average return and the historical volatility of large, well diversified,
Ans:There is a strong rel
Mutually Exclusive versus Independent Projects:
The NPV approach can be used to evaluate independent as well as mutually exclusive projects.
A choice between mutually exclusive projects arises when:
1. There is a need for only one project, and both projec
The IRR rule
Mayco, Inc. wants to buy a new printer. Mayco is looking at two mutually exclusive projects: A
Printer A costs $100,000 and generates positive after-tax cash flows of $75,000 at the end of
each of the
next two years. Printer B also cos
Security market line
What, intuitively, does CAPM say drives expected return?
Ans:The CAPM says that systematic risk drives the expected returns of an asset.
What relationship is described by the security market line?
Ans:The security market line describe
Investing with risks
What is the difference between systematic and unsystematic risk
Ans:Systematic risk is the risk that cannot be diversified away, while
unsystematic risk is the risk that is diversifiable.
There are three companies working on a new app