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What is the rate of return required by investors in the market for owning a bond called?
YTM
The CAPM implies that investors require a higher return to hold highly volatile securities?
The CAPM relates the expected return on a security to that of the overall market portfolio. A highly volatile security will have a high covariance with the market portfolio. Since beta equals the covariance of the security with the market portfolio divided by the variance of the market portfolio, the result is a high value of beta. When this high value of beta is plugged into the CAPM formula, all else not changed, the required return on the security (ra) is going to increase, implying investors require a higher return to hold a highly volatile security. t
Why do bond investors have lower required rates of return than do stock investors?
They take less risk, theoretically, so they have lower expectations.
The risk-return relationship for each financial asset is shown on?
the security market line
What is the required return for a security is15 percent and the risk-free rateis6 percent the risk premium is?
The risk premium for a security is calculated by subtracting the risk-free rate from the required return. In this case, with a required return of 15 percent and a risk-free rate of 6 percent, the risk premium is 15% - 6% = 9%. Thus, the risk premium is 9 percent.
Relationship between required rate of return and coupon rate on the value of a bond?
required rate of return is the 'interest' that investors expect from an investment project. coupon rate is the interest that investors receive periodically as a reward from investing in a bond
What are the factors that determine the required rate of return for a security?
The required rate of return for a security is influenced by several key factors, including the risk-free rate, which is typically represented by government bond yields, and the security's risk premium, which compensates investors for taking on additional risk. This risk premium can be affected by the security's volatility, market conditions, and the company's specific financial health and performance. Additionally, macroeconomic factors, such as inflation and interest rates, also play a crucial role in determining the overall required rate of return.
What is the rate of return required by investors in the market for owning a bond called?
YTM
The CAPM implies that investors require a higher return to hold highly volatile securities?
The CAPM relates the expected return on a security to that of the overall market portfolio. A highly volatile security will have a high covariance with the market portfolio. Since beta equals the covariance of the security with the market portfolio divided by the variance of the market portfolio, the result is a high value of beta. When this high value of beta is plugged into the CAPM formula, all else not changed, the required return on the security (ra) is going to increase, implying investors require a higher return to hold a highly volatile security. t
Explain why a characteristic of an efficient market is that investments in that market have zero NPVs?
On average, the only return that is earned is the required return-investors buy assets with returns in excess of the required return (positive NPV), bidding up the price and thus causing the return to fall to the required return (zero NPV); investors sell assets with returns less than the required return (negative NPV), driving the price lower and thus the causing the return to rise to the required return (zero NPV).
The cost of equity and the required rate of return are equal to what?
The cost of equity is the return that investors expect for holding a company's equity, reflecting the risk of the investment. The required rate of return is the minimum return an investor expects to earn from an investment, compensating for its risk. In essence, the cost of equity and the required rate of return are equal as they both represent the expected return that justifies the risk taken by investors in equity securities.
What is the relationship between required rate of return and coupon rate on the value of bond?
The relationship between the required rate of return and the coupon rate significantly affects a bond's value. If the required rate of return is higher than the coupon rate, the bond will typically trade at a discount, as investors seek higher yields elsewhere. Conversely, if the required rate of return is lower than the coupon rate, the bond will trade at a premium, since it offers more attractive returns relative to current market rates. Thus, changes in the required rate of return directly influence the bond's market price.
Why do bond investors have lower required rates of return than do stock investors?
They take less risk, theoretically, so they have lower expectations.
What is the relationship between wacc and discount rate of return?
relationship between WACC and required rate of return.
One security has a greater risk than another security how will investors respond?
They will require a higher rate of return for the investment that has greater risk
The risk-return relationship for each financial asset is shown on?
the security market line
The risk return relationship for each financial asset is shown on?
the security market line
