Question

Which of the following is TRUE about RISK​ & RETURN​? A. The terms​ "systematic" and​ "diversifiable" risk mean the same thing. B. Ceteris paribus​, higher standard deviations represent lower risk. C. In the CAPM​ model, if the MRP is​ 8% and the​ risk-free rate is​ 2%, then the expected return on the market would be​ 6%. D. For a holding period of 7​ months, the annualized HPR would be greater than the​ 7-month HPR.

Answer 1

Answer:

D. For a holding period of 7​ months, the annualized HPR would be greater than the​ 7-month HPR.

Explanation:

The terms​ systematic risk means the risk associated with the whole market. It is not a diversifiable risk. This risk will be faced in every industry. On the other hand diversifiable risk is associated with a specific industry or security  and it can be mitigate by changing the industry or having presence in presence in multiple industries.

Higher standard deviations represent variation which leads to higher risk and lower standard deviation represents the lower risk due to lower variation.

Expected market return is the sum of risk frre rate and market premium. Expected market rate will be 10%(8%+2%) in the given scanerio rather 6%.

Yes it is True that for a holding period of 7​ months, the annualized HPR would be greater than the​ 7-month HPR.

Suppose HPR of 7 months is 6.3%, The the annualized HPR will be 10.8%(6.3% x 12/7 ) .