a) DEFINE WHAT IS MEANT BY THE CAPITAL MARKET LINE
(CML),
USING BOTH THE DEFINITION AND THE SHORT E(rp )
EQUATION.
b) DEFINE WHAT IS MEANT BY THE SECURITY MARKET LINE
(SML),
AND PROVIDE THE GENERAL EQUATION FOR THE SECURITY
MARKET
LINE.
Using the properties of the capital market line (CML) and the
security market line (SML), determine which of the following
scenarios are consistent or inconsistent with the CAPM. Explain
your answers. Let A denote arbitrary securities while F and M
represent the riskless asset and the market portfolio
respectively.
a.
Security
E[R]
σ(R)
A
25%
30%
M
15%
30%
b.
Security
E[R]
σ(R)
A
25%
55%
F
5%
0%
M
15%
30%
21.With the aid of a diagram, describe the capital market line
(CML). Your answer should include reference to the importance of
the slope of the CML. ‘If investors are rational they will all
choose risky assets in the same proportion when riskless asset
borrowing and lending is allowed’. Do you agree with this
statement? Explain your answer.
24.With the aid of a diagram, describe the security market line
(SML). Your answer should include reference to the importance of
the slope...
Show that any portfolio on the Capital Market Line (CML) with a
positive weight in the market portfolio is perfectly correlated
with the market portfolio. Interpret this result.
Which of the following regarding the Capital Market Line (CML),
is false?
In equilibrium, the CAPM says that the CML represents the best
risk-reward combinations available to all investors.
The slope of the CML is the risk premium on the market
portfolio divided by its standard deviation.
Although investors will try and achieve higher returns, the
forces of competition will move asset prices toward the CML.
The CML applies regardless of market conditions.
In your own words explain what working capital management is and
give an example of one way Organic Produce Corporation’s financial
managers could improve the company’s working capital position.
Give an explanatory (numerical) example that illustrates a
market failure in the market for used cars. Please includes an
overlap in prices for each quality type and market failure.
1.
Give your own example to show the effect of mode and the median is
nil, but the mean increases if some of the values in a given set of
data is changed.