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Stock Market investing indeed has a high level of risk most especially if you are new investor - some did lose as much as 60% during 2008 crisis - but the potential return can also be great. It is imperative that you have a prior knowledge before you test the waters of investing; risks can be managed through diversification and cost averaging.
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What is stock variation?
It determines how much of a risk you are taking, compared to the amount of return you can expect back from your investment.
What is the return on the market portfolio if the risk-free rate is 5.3 percent. If a stock has a beta of 1.8 and a required rate of return of 12.0 percent and the market is in equilibrium?
In a market in equilibrium, the Capital Asset Pricing Model (CAPM) can be used to determine the return on the market portfolio. The formula is given by: [ R_m = R_f + \beta(R_m - R_f) ] Where ( R_m ) is the return on the market portfolio, ( R_f ) is the risk-free rate, and ( \beta ) is the stock's beta. Given the risk-free rate of 5.3 percent and a stock with a beta of 1.8 and a required return of 12.0 percent, we can rearrange the formula to solve for ( R_m ). Solving yields ( R_m ) = 11.5 percent, indicating the market portfolio's return.
What is the relationship between risk and return in investment decisions?
The relationship between risk and return in investment decisions is that generally, higher returns are associated with higher levels of risk. Investors must weigh the potential for greater returns against the possibility of losing money when making investment decisions.
What is the benefit forgone when choosing to invest in a low-risk savings account instead of a high-risk stock market investment?
The benefit forgone when choosing a low-risk savings account over a high-risk stock market investment is the potential for higher returns. In other words, by opting for the safety of a savings account, you may miss out on the opportunity to earn greater profits that come with investing in the stock market.
What is the difference between the required rate of return and the expected rate of return in investment analysis?
The required rate of return is the minimum return an investor needs to justify the risk of an investment, while the expected rate of return is the return that an investor anticipates receiving based on their analysis of the investment's potential performance.
How is the potential rate of return on investments related to the level of risk?
Higher risk investments have a higher potential return.
The higher the potential return the?
higher the risk for an investment
Risk free rate is 5 and the market risk premium is 6 What is the expected return for the overall stock market What is the required rate of return on a stock that has a beta of 1.2?
Expected return= risk free rate + Risk premium = 11 rate of return on stock= Riskfree rate + beta x( expected market return- risk free rate)
What factors contribute to the potential for speculative return on investment?
Factors that contribute to the potential for speculative return on investment include market conditions, investor sentiment, economic indicators, and the level of risk associated with the investment.
What is a BETA number?
In finance, a beta number measures the volatility or risk of a stock relative to the overall market. A beta greater than 1 indicates that the stock is more volatile than the market, while a beta less than 1 suggests the stock is less volatile. It helps investors assess the potential risk and return of a particular investment.
What is the risk level of stock-futures investments?
The risk level of stock-futures investments is generally high. Stock futures are derivative contracts that derive their value from an underlying stock. As such, they are subject to market volatility, price fluctuations, and other risk factors associated with the stock market. Investors should carefully assess their risk tolerance and make informed decisions before investing in stock futures.
What does the risk-return trade-off mean?
In trading and investing, the risk is almost always higher if the return is expected to be greater.The risk-return trade off refers to the direct correlation between risk and return. An investor putting funds into a very low risk investment such as short term government bonds does not expect to incur a loss but will also have no opportunity for a high rate of return. Investing in higher risk ventures such as start up companies, initial public offerings, or common stock can result in significant loss but also offers the potential for out sized returns. Most investors understand that the higher the risk, the higher the potential returns.
What is meant by stock out risk and service level?
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If the risk-free rate is .06 and expected return on the market is .13. What is the requred rate of return on a stock that has a beta of 7?
49%....in reality no stock has a beta of 7
Explain under what situation the risk of the portfolio can be reduced while maintaining the same level of expected return?
With the use of insurance on whatever part of the portfolio is invested in the stock market.
How do financial decision involve risk return trade off?
The principle that potential return rises with an increase in risk. Low levels of uncertainty (low risk) are associated with low potential returns, whereas high levels of uncertainty (high risk) are associated with high potential returns. According to the risk-return tradeoff, invested money can render higher profits only if it is subject to the possibility of being lost.-- Raju R akki
What are the factors influencing the level of investment in an economy?
*cost *expected return *stock of capital on hand *risk
