Question 1

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

Accepted Answer

A)  firm-specific events. 
B)  macroeconomic events. 
C)  the error term. 
D)  both firm-specific events and macroeconomic events. 
E)  neither firm-specific events nor macroeconomic events. 
A)  firm-specific events. 
B)  macroeconomic events. 
C)  the error term. 
D)  both firm-specific events and macroeconomic events. 
E)  neither firm-specific events nor macroeconomic events.

Question 2

Assume that stock market returns do follow a single-index structure. An investment fund analyzes 500 stocks in order to construct a mean-variance efficient portfolio constrained by 500 investments. They will need to calculate ________ estimates of firm-specific variances and ________ estimate/estimates for the variance of the macroeconomic factor.

Accepted Answer

A)  500; 1 
B)  500; 500 
C)  124,750; 1 
D)  124,750; 500 
E)  250,000; 500 
A)  500; 1 
B)  500; 500 
C)  124,750; 1 
D)  124,750; 500 
E)  250,000; 500

Question 3

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

Accepted Answer

A)  0.46 
B)  0.60 
C)  0.70 
D)  0.94 
A)  0.46 
B)  0.60 
C)  0.70 
D)  0.94

Question 4

In the single-index model represented by the equation ri = E(ri) + βiF + ei, the term ei represents

Accepted Answer

A)  the impact of unanticipated macroeconomic events on security i's return. 
B)  the impact of unanticipated firm-specific events on security i's return. 
C)  the impact of anticipated macroeconomic events on security i's return. 
D)  the impact of anticipated firm-specific events on security i's return. 
E)  the impact of changes in the market on security i's return. 
A)  the impact of unanticipated macroeconomic events on security i's return. 
B)  the impact of unanticipated firm-specific events on security i's return. 
C)  the impact of anticipated macroeconomic events on security i's return. 
D)  the impact of anticipated firm-specific events on security i's return. 
E)  the impact of changes in the market on security i's return.

Question 5

The index model has been estimated for stocks A and B with the following results: RA = 0.01 + 0.6RM + eA.
RB = 0.02 + 1.2RM + eB.
ΣM = 0.30; σ(eA) = 0.20; σ(eB) = 0.10.
The standard deviation for stock A is

Accepted Answer

A)  0.0656. 
B)  0.0676. 
C)  0.3499. 
D)  0.2600. 
A)  0.0656. 
B)  0.0676. 
C)  0.3499. 
D)  0.2600.

Question 6

The beta of Facebook stock has been estimated as 1.8 using regression analysis on a sample of historical returns. A commonly-used adjustment technique would provide an adjusted beta of

Accepted Answer

A)  1.20. 
B)  1.32. 
C)  1.13. 
D)  1.53. 
A)  1.20. 
B)  1.32. 
C)  1.13. 
D)  1.53.

Question 7

Security returns

Accepted Answer

A)  are based on both macro events and firm-specific events. 
B)  are based on firm-specific events only. 
C)  are usually positively correlated with each other. 
D)  are based on firm-specific events only and are usually positively correlated with each other. 
E)  are based on both macro events and firm-specific events and are usually positively correlated with each other. 
A)  are based on both macro events and firm-specific events. 
B)  are based on firm-specific events only. 
C)  are usually positively correlated with each other. 
D)  are based on firm-specific events only and are usually positively correlated with each other. 
E)  are based on both macro events and firm-specific events and are usually positively correlated with each other.

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

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

In the single-index model represented by the equation r_i = E(r_i) + β_iF + e_i, the term e_i represents

The index model has been estimated for stocks A and B with the following results: R_A = 0.01 + 0.6R_M + e_A. R_B = 0.02 + 1.2R_M + e_B. Σ_M = 0.30; σ(e_A) = 0.20; σ(e_B) = 0.10. The standard deviation for stock A is

The beta of Facebook stock has been estimated as 1.8 using regression analysis on a sample of historical returns. A commonly-used adjustment technique would provide an adjusted beta of

Security returns

The Investment Environment

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

Efficient Diversification

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral 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

Filters

Exam 8: Index Models

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

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

In the single-index model represented by the equation ri = E(ri) + βiF + ei, the term ei represents

The index model has been estimated for stocks A and B with the following results: RA = 0.01 + 0.6RM + eA. RB = 0.02 + 1.2RM + eB. ΣM = 0.30; σ(eA) = 0.20; σ(eB) = 0.10. The standard deviation for stock A is

The beta of Facebook stock has been estimated as 1.8 using regression analysis on a sample of historical returns. A commonly-used adjustment technique would provide an adjusted beta of

Security returns

The Investment Environment

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

Efficient Diversification

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral 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

Filters

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

In the single-index model represented by the equation r_i = E(r_i) + β_iF + e_i, the term e_i represents

The index model has been estimated for stocks A and B with the following results: R_A = 0.01 + 0.6R_M + e_A. R_B = 0.02 + 1.2R_M + e_B. Σ_M = 0.30; σ(e_A) = 0.20; σ(e_B) = 0.10. The standard deviation for stock A is