Exam 8: Index Models

Consider the single-index model.The alpha of a stock is 0%.The return on the market index is 10%.The risk-free rate of return is 3%.The stock earns a return that exceeds the risk-free rate by 11%, and there are no firm-specific events affecting the stock performance.The $\beta$ of the stock is

The beta of a stock has been estimated as 0.85 using regression analysis on a sample of historical returns.A commonly-used adjustment technique would provide an adjusted beta of

Suppose the following equation best describes the evolution of $\beta$ over time: $\beta$ _t = 0.18 + 0.63 $\beta$ _{t - 1}. If a stock had a $\beta$ of 1.09 last year, you would forecast the $\beta$ to be _______ in the coming year.

Covariances between security returns tend to be

Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 150 stocks in order to construct a mean-variance efficient portfolio constrained by 150 investments.They will need to calculate _____________ expected returns and ___________ variances of returns.

Rosenberg and Guy found that ___________ helped to predict firms' betas.

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds.If the $\sigma$ of your portfolio was 0.24 and $\sigma$ _M was 0.18, the $\beta$ of the portfolio would be approximately

Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 125 stocks in order to construct a mean-variance efficient portfolio constrained by 125 investments.They will need to calculate ____________ covariances.

If the index model is valid, _________ would be helpful in determining the covariance between assets K and L.

In the single-index model represented by the equation r_i= E(r_i) + $\beta$ _iF + e_i, the term e_i represents

As diversification increases, the standard deviation of a portfolio approaches

Suppose the following equation best describes the evolution of $\beta$ over time: $\beta$ _t = 0.31 + 0.82 $\beta$ _{t - 1}. If a stock had a $\beta$ of 0.88 last year, you would forecast the $\beta$ to be _______ in the coming year.

Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 40 stocks in order to construct a mean-variance efficient portfolio constrained by 40 investments.They will need to calculate ____________ covariances.

The intercept in the regression equations calculated by beta books is equal to

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds.If the $\sigma$ of your portfolio was 0.14 and $\sigma$ _M was 0.19, the $\beta$ of the portfolio would be approximately

If a firm's beta was calculated as 0.6 in a regression equation, a commonly-used adjustment technique would provide an adjusted beta of

Analysts may use regression analysis to estimate the index model for a stock.When doing so, the intercept of the regression line is an estimate of

The expected impact of unanticipated macroeconomic events on a security's return during the period is

Analysts may use regression analysis to estimate the index model for a stock.When doing so, the slope of the regression line is an estimate of

The beta of Exxon stock has been estimated as 1.6 using regression analysis on a sample of historical returns.A commonly-used adjustment technique would provide an adjusted beta of