Exam 8: Index Models

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 ___ expected returns and _ variances of returns.

(Multiple Choice)

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Question 41

As diversification increases, the unsystematic risk of a portfolio approaches

(Multiple Choice)

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Question 42

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 0.18 and $\sigma$ _M was 0.24, the $\beta$ of the portfolio would be approximately

(Multiple Choice)

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Question 43

Suppose you forecast that the market index will earn a return of 12% in the coming year.Treasury bills are yielding 4%.The unadjusted $\beta$ of Mobil stock is 1.50.A reasonable forecast of the return on Mobil stock for the coming year is _________ if you use a common method to derive adjusted betas.

(Multiple Choice)

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Question 44

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 0.20 and $\sigma$ _M was 0.16, the $\beta$ of the portfolio would be approximately

(Multiple Choice)

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Question 45

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 5%.The stock earns a return that exceeds the risk-free rate by 5%, and there are no firm-specific events affecting the stock performance.The $\beta$ of the stock is

(Multiple Choice)

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Question 46

The beta of a stock has been estimated as 1.4 using regression analysis on a sample of historical returns.A commonly-used adjustment technique would provide an adjusted beta of

(Multiple Choice)

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Question 47

The index model has been estimated for stock A with the following results: R_A = 0.01 + 0.8R_M + e_A. $\sigma$ _M = 0.20; $\sigma$ (e_A) = 0.10. The standard deviation of the return for stock A is

(Multiple Choice)

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Question 48

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 ____________ covariances.

(Multiple Choice)

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Question 49

Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 100 stocks in order to construct a mean-variance efficient portfolio constrained by 100 investments.They will need to calculate ___ expected returns and _ variances of returns.

(Multiple Choice)

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Question 50

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

(Multiple Choice)

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Question 51

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 0.22 and $\sigma$ _M was 0.19, the $\beta$ of the portfolio would be approximately

(Multiple Choice)

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Question 52

A single-index model uses __________ as a proxy for the systematic risk factor.

(Multiple Choice)

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Question 53

The beta of JCP stock has been estimated as 1.2 using regression analysis on a sample of historical returns.A commonly-used adjustment technique would provide an adjusted beta of

(Multiple Choice)

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Question 54

As diversification increases, the firm-specific risk of a portfolio approaches

(Multiple Choice)

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Question 55

In a factor model, the return on a stock in a particular period will be related to

(Multiple Choice)

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Question 56

The index model for stock A has been estimated with the following result: R_A = 0.01 + 0.9R_M + e_A. If $\sigma$ _M = 0.25 andR²_A = 0.25, the standard deviation of return of stock A is

(Multiple Choice)

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Question 57

Suppose the following equation best describes the evolution of $\beta$ over time: $\beta$ _t = 0.3 + 0.2 $\beta$ _t_{- 1} If a stock had a $\beta$ of 0.8 last year, you would forecast the $\beta$ to be _______ in the coming year.

(Multiple Choice)

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Question 58

Assume that stock market returns do follow a single-index structure.An investment fund analyzes 217 stocks in order to construct a mean-variance efficient portfolio constrained by 217 investments.They will need to calculate estimates of expected returns and estimates of sensitivity coefficients to the macroeconomic factor.

(Multiple Choice)

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Question 59

The security characteristic line (SCL) associated with the single-index model is a plot of

(Multiple Choice)

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Question 60

Showing 41 - 60 of 76

Exam 8: Index Models

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 _____________ expected returns and ___________ variances of returns.

As diversification increases, the unsystematic risk of a portfolio approaches

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds.If the σ\sigmaσ of your portfolio was 0.18 and σ\sigmaσ M was 0.24, the β\betaβ of the portfolio would be approximately

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds.If the σ\sigmaσ of your portfolio was 0.20 and σ\sigmaσ M was 0.16, the β\betaβ of the portfolio would be approximately

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 5%.The stock earns a return that exceeds the risk-free rate by 5%, and there are no firm-specific events affecting the stock performance.The β\betaβ of the stock is

The beta of a stock has been estimated as 1.4 using regression analysis on a sample of historical returns.A commonly-used adjustment technique would provide an adjusted beta of

The index model has been estimated for stock A with the following results: RA = 0.01 + 0.8RM + eA. σ\sigmaσ M = 0.20; σ\sigmaσ (eA) = 0.10. The standard deviation of the return for stock A is

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 ____________ covariances.

Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 100 stocks in order to construct a mean-variance efficient portfolio constrained by 100 investments.They will need to calculate _____________ expected returns and ___________ variances of returns.

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

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds.If the σ\sigmaσ of your portfolio was 0.22 and σ\sigmaσ M was 0.19, the β\betaβ of the portfolio would be approximately

A single-index model uses __________ as a proxy for the systematic risk factor.

The beta of JCP stock has been estimated as 1.2 using regression analysis on a sample of historical returns.A commonly-used adjustment technique would provide an adjusted beta of

As diversification increases, the firm-specific risk of a portfolio approaches

In a factor model, the return on a stock in a particular period will be related to

The index model for stock A has been estimated with the following result: RA = 0.01 + 0.9RM + eA. If σ\sigmaσ M = 0.25 andR2A = 0.25, the standard deviation of return of stock A is

Suppose the following equation best describes the evolution of β\betaβ over time: β\betaβ t = 0.3 + 0.2 β\betaβ t - 1 If a stock had a β\betaβ of 0.8 last year, you would forecast the β\betaβ to be _______ in the coming year.

The security characteristic line (SCL) associated with the single-index model is a plot of

The Investment Environment

Financial Markets, Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioural Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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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 ___ expected returns and _ variances of returns.

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 0.18 and $\sigma$ _M was 0.24, the $\beta$ of the portfolio would be approximately

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 0.20 and $\sigma$ _M was 0.16, the $\beta$ of the portfolio would be approximately

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 5%.The stock earns a return that exceeds the risk-free rate by 5%, and there are no firm-specific events affecting the stock performance.The $\beta$ of the stock is

The index model has been estimated for stock A with the following results: R_A = 0.01 + 0.8R_M + e_A. $\sigma$ _M = 0.20; $\sigma$ (e_A) = 0.10. The standard deviation of the return for stock A is

Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 100 stocks in order to construct a mean-variance efficient portfolio constrained by 100 investments.They will need to calculate ___ expected returns and _ variances of returns.

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 0.22 and $\sigma$ _M was 0.19, the $\beta$ of the portfolio would be approximately

The index model for stock A has been estimated with the following result: R_A = 0.01 + 0.9R_M + e_A. If $\sigma$ _M = 0.25 andR²_A = 0.25, the standard deviation of return of stock A is

Suppose the following equation best describes the evolution of $\beta$ over time: $\beta$ _t = 0.3 + 0.2 $\beta$ _t_{- 1} If a stock had a $\beta$ of 0.8 last year, you would forecast the $\beta$ to be _______ in the coming year.