Describe Ways to Make IM More Efficient and Effective

question 33

Essay

Describe ways to make IM more efficient and effective.

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Definitions:

Risk Premiums

The additional return expected by an investor for taking on a higher risk compared to a risk-free investment.

No Arbitrage

A principle stating that it is impossible to achieve risk-free profits from inconsistent or mispriced asset prices in efficient markets, as arbitrage opportunities are quickly exploited and corrected.

Risk Premium

The extra return over the risk-free rate that investors require to compensate them for the risk of holding a risky asset.

Risk Aversion

A person's or entity's reluctance to take risks, preferring lower returns with known risks over higher returns with unknown risks.