Question

• Critically evaluate the following statement: Playing the stock market is like gambling. Such speculative investing has no social value, other than the pleasure people get from this form of gambling.
• Is it possible for the risk premium to be negative before an investment is undertaken? Can the risk premium be negative after the fact? Explain
• What is the difference between arithmetic and geometric returns? Suppose you invested in a stock for at least 10 years. Which number is more important to you, the arithmetic or geometric return?
• What is the difference between uncertainty and risk?
• If a portfolio has a positive investment in every asset, can the expected return on the portfolio be greater than that on every asset in the portfolio? Can it be less than that on every asset in the portfolio? If you answer yes to one or both of these questions, give an example to support your answer.
• Is it possible that a risky asset could have a beta of zero? Explain. Based on CAPM, what is the expected return on such asset? Is it possible that a risky asset could have a negative beta? What does CAPM predict about the expected return on such asset? Explain.
• Consider the following statement: For the APT to be useful, the number of systematic risk factors must be small. Do you agree or disagree with this statement? Why
• What is the relationship between the one-factor model and the CAPM?

Answer 1

"Playing the stock market is like gambling......It has no social value"

Above Statement is Not at all Correct.

Stock Market is a place where majority of the companies i.e. Businesses of the country ae listed and Stock represents a small share in a particular company. By investing in the stock of a company, we are becoming a shaeholder i.e. a small owner or a partner in a particula business. When the busines will prosper, stock price will increase and comapny might also pay dividends from time to time. Therefore, if done in a proper way with realistic expectations(not to get rich quick), then stock market is not gambling.

Looking at the other aspect, that is, what impact it will have on society. When companies get enough investments, they get an opportunity to grow quickly. And, when the money is constantly flowing in the economy(instead of being as it is with people), it also helps the economy to develop. If general people, do not invest in stock markets, it is actually bad for the economy. A simple sign to look how developed an economy is, is to look, how much percentage of the general public is invested in stock market.

Therefore, Concluding, Stock Market is NOT Gamnbling, provided, it is done in Right Way and with Realistic Expectations(i.e. Not to get Rich Quick). And it is MUST for the country that a good number of the general public is invested in stock market.