Cynthia bought a T-bill believing it to be a risk-free asset. Which of the following risk is not associated with T-bills.

Cynthia bought a T-bill believing it to be a risk-free asset. Which of the following risk is not associated with T-bills.

Inflation risk
Default risk
Reinvestment risk
All of these risks are associated with T-bills.

Expert Solution

If Inflation rises, T-Bills price will reduce. So, there is an Inflation risk.

T-bills are Governement securities. therefore, there is No Default risk.

Therefore, (b) Default risk

jeff jeffy answered 2 years ago

Given the following data about risky portfolios P and M and the risk-free asset (T-bills): State...

Given the following data about risky portfolios P and M and the risk-free asset (T-bills): State State 1 (recession) State 2 (normal) State 3 (boom) State probability 0.4 0.4 0.2 Return, P -0.15 0.15 0.45 Return, M -0.18 0.28 0.35 Return, T-bills 0.05 0.05 0.05 Find the expected return, variance, standard deviation, and Sharpe ratio of P Find the expected return, variance, standard deviation, and Sharpe ratio of M Find the covariance between P and M Assuming M is the...

The spot term structure for T-Bills (proxy for the risk free rate) is as follows 30-Day...

The spot term structure for T-Bills (proxy for the risk free rate) is as follows 30-Day T-Bill=7% per annum, 60-Day T-Bill=7.25% per annum, 90-Day T-Bill=7.5% per annum, 180-Day T-Bill=7.65% per annum and the 270-Day T-Bill=7.85% per annum all with continuous compounding. A stock pays $0.5 per quarter as dividends, the first dividend has just been paid and the current stock price is $50. What is the price of a 6-month At-the-Money European Put option on this stock if the volatility...

INTEREST RATES= INFLATION PREMIUM + Compensation for risk free rate ( T Bill Rate ) of...

INTEREST RATES= INFLATION PREMIUM + Compensation for risk free rate ( T Bill Rate ) of return + specific risk premium compensation ( Default Risk, Liquidity Risk, Maturity Risk, Opportunity risk, etc). compare and contrast the various methods used by banks to assess interest rate risk to their net interest rate margin?

which of the following risk-free zero-coupon bonds could be bought for the lowest price? A. one...

which of the following risk-free zero-coupon bonds could be bought for the lowest price? A. one with a face value of $1,000 a ytm of 6.2% and 18 years to maturity B. one with a face value of $1,000 a ytm of 7.8% and 15 years to maturity C. with a face value of $1,000 a ytm of 6.8% and 18 years to maturity D.one with a face value of $1,000 a ytm of 5.9% and 20 years to maturity

Aasir can invest his money in risk-free asset and/or in a fund F. The risk-free asset...

Aasir can invest his money in risk-free asset and/or in a fund F. The risk-free asset provides a guaranteed return of 4%. The fund F provides expected return of 12% with volatility of 25%. If Aasir wants to limit his risk to no more than 20%, what is the highest expected return he can earn? If Aasir wants an expected return of at least 16%, what is the minimum possible volatility of his portfolio?

In a portfolio consisting of the risk free asset and/or a risky asset, what is the...

In a portfolio consisting of the risk free asset and/or a risky asset, what is the expected return and standard deviation if you borrow 25% of your net worth by selling short the risk free asset and invest the proceeds in the risky asset, given the following? Rm = .15 Rf = .05 σm = .2

17. A portfolio consists 20% of a risk-free asset and 80% of a stock. The risk-free...

17. A portfolio consists 20% of a risk-free asset and 80% of a stock. The risk-free return is 4%. The stock has an expected return of 15% and a standard deviation of 30%. What’s the expected return A. 12.8% B. 9.5% C. 15.0% D. 4.0% 18. The stock of Alpha Company has an expected return of 0.10 and a standard deviation of 0.25. The stock of Gamma Company has an expected return of 0.16 and a standard deviation of 0.40....

You invest $98 in a risky asset and the T-bill. The risky asset has an expected...

You invest $98 in a risky asset and the T-bill. The risky asset has an expected rate of return of 18% and a standard deviation of 0.24, and a T-bill with a rate of return of 5%. A portfolio that has an expected outcome of $111 is formed by investing what dollar amount in the risky asset? Round your answer to the nearest cent (2 decimal places).

Current asset accounts: • Cash – this is a current asset, which includes cash in bills,...

Current asset accounts: • Cash – this is a current asset, which includes cash in bills, coins, bank balances and checks. • Accounts receivable – Amounts owed from another company for services or products they sold on credit. Current liability accounts: • Accounts payable – Amounts owed to another company for services or products purchased on credit. • Rent payable – Money that is owed to a landlord. Expense accounts • Payroll taxes expense – taxes owed to the state...

Which of the following is NOT associated with (or does not contribute to) business risk? A....

Which of the following is NOT associated with (or does not contribute to) business risk? A. Sales price variability B. The extent to which interest rates on the firm's debt fluctuate. C. The extent to which operating costs are fixed. D. Demand variability E. Input price variability

Question