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- Market risk ________. a. is equal to the rate of return generated by a risk-free asset b. cannot be eliminated, as it is non-diversifiable c. is synonymous with diversifiable risk d. is synonymous with financial riskWhich of the following risks cannot be hedged?A. CreditB. LiquidityC. CurrencyD. Duration(a) Define risk-free asset (b) Is the following statement true or false. Briefly explain your answer. "There can not be a universally risk-free asset for all investors."
- c) Explain what is meant Market Risk and by Specific risk. How can an investor reducethese risks?The maximum rate of return needed to induce an investor to purchase or hold a security is referred to as the investor's required rate of return. OTRUE. FALSESecurity selection refers to A. the allocation of assets into broad asset classes. B. choosing which securities to hold based on their valuation. C. top-down analysis. D. investing only in "safe" securities.
- Derivatives are used in risk management because they _____.a. diversify risksb. hedge risksc. avoid risksd. none of the aboveWhat are the key factors that can lead to an under/overstatement of the investments balance?1. How are passive investments accounted for under ASPE? a) Cost of amortized cost. b) FVTPL for equity securities with fair value prices c) Neither is correct. d) Both treatments are acceptable.
- . The Capital asset Pricing Model (CAPM) contends that there is systematic & unsystematic risk for an individual security. Which is the relevant risk variable & why it’s relevant?Systematic risk is diversifiable, so it is an investment's relevant risk. Unsystematic risk is O True FalseThe capital asset pricing model expresses the cost of equity as a function of a return on riskless assets, a market premium, and: Select one:a. Unsystematic risk.b. None of these.c. The cost of debt.d. Systematic risk.