Exam 9: Multifactor Models of Risk and Return

Exhibit 10.9 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are provided with the following year end information for All Systems Corporation. -According to the APT model all securities should be priced such that riskless arbitrage is possible.

A 1994 study by Burmeister, Roll, and Ross defined all of the following risk factors except

Exhibit 10.9 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are provided with the following year end information for All Systems Corporation. -The January Effect is an anomaly where returns in January are significantly smaller than in any other month.

Exhibit 9.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -The equation for the single-index market model is

Exhibit 9.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -In one of their empirical tests of the APT, Roll and Ross examined the relationship between a security's returns and its own standard deviation. A finding of a statistically significant relationship would indicate that

Exhibit 10.9 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are provided with the following year end information for All Systems Corporation. -Fama and French suggest a four factor model approach that explains many prior market anomalies.

Exhibit 9.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -To date, the results of empirical tests of the Arbitrage Pricing Model have been

Exhibit 9.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Assume that you are embarking on a test of the small-firm effect using APT. You form 10 size-based portfolios. The following finding would suggest there is evidence supporting APT:

Consider the following list of risk factors: Which of the following factors would you use to develop a microeconomic-based risk factor model?

Exhibit 10.9 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are provided with the following year end information for All Systems Corporation. -Studies indicate that neither firm size nor the time interval used are important when computing beta.

Exhibit 9.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas). The zero-beta return ( $\lambda$ ₀) = 3%, and the risk premia are $\lambda$ ₁ = 10%, $\lambda$ ₂ = 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2. The expected prices one year from now for stocks X, Y, and Z are

In a micro-economic (or characteristic) based risk factor model the following factor would be one of many appropriate factors:

Exhibit 9.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -In the APT model the idea of riskless arbitrage is to assemble a portfolio that

Exhibit 10.9 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are provided with the following year end information for All Systems Corporation. -Empirical tests of the APT model have found that as the size of a portfolio increased so did the number of factors.

Under the following conditions, what are the expected returns for stocks X and Y?

Consider the following list of risk factors: Which of the following factors would you use to develop a macroeconomic-based risk factor model?

Exhibit 10.9 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are provided with the following year end information for All Systems Corporation. -The APT assumes that security returns are normally distributed.

Exhibit 9.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -The excess return form of the single-index market model is

Exhibit 9.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas). The zero-beta return ( $\lambda$ ₀) = 3%, and the risk premia are $\lambda$ ₁ = 10%, $\lambda$ ₂ = 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2. The expected returns for stock X, stock Y, and stock Z are

Under the following conditions, what are the expected returns for stocks A and B?