Exam 8: An Introduction to Asset Pricing Models

Exhibit 8.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 8.5. Which of the three portfolios are most likely to be the market portfolio?

Exhibit 8.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 8.3. The covariance between Radtron and the true index is

Which of the following is not an assumption of the Capital Market Theory?

The correlation coefficient between the market return and a risk-free asset would

The expected return for a stock, calculated using the CAPM, is 25%. The risk free rate is 7.5% and the beta of the stock is 0.80. Calculate the implied return on the market.

Calculate the expected return for E Services which has a beta of 1.5 when the risk free rate is 0.05 and you expect the market return to be 0.11.

All of the following are assumptions of the Capital Asset Pricing Model (CAPM) except

The Capital Market Line (CML) can be thought of as the new Efficient Frontier.

Exhibit 8.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 8.4. If the expected return on the market is 11.5% and the risk-free rate of return is 4.5%, then what are the required rates of return for stocks X, Y, and Z based on the CAPM? X Y Z

Calculate the expected return for C Inc. which has a beta of 0.8 when the risk free rate is 0.04 and you expect the market return to be 0.12.

Theoretically, the correlation coefficient between a completely diversified portfolio and the market portfolio should be

The market portfolio consists of all risky assets.

Exhibit 8.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 8.3. The covariance between Radtron and the proxy index is

The ____ the number of stocks in a portfolio and the ____ the time period the ____ the portfolio beta.

Consider a risky asset that has a standard deviation of returns of 15. Calculate the correlation between the risky asset and a risk free asset.

Exhibit 8.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 8.1. Compute the correlation coefficient between RA Computer and the Market Index.

A friend has some reliable information that the stock of Puddles Company is going to rise from $43.00 to $50.00 per share over the next year. You know that the annual return on the S&P 500 has been 11% and the 90-day T-bill rate has been yielding 5% per year over the past 10 years. If beta for Puddles is 1.5, will you purchase the stock?

The usefulness of CAPM theory is limited in practice due to benchmark error.

If the market portfolio is mean-variance efficient it has the lowest risk for a given level of return among the attainable set of portfolios.

The fact that tests have shown the CAPM intercept to be greater than the RFR is consistent with a(n)