Question 1

Which of the following is not a characteristic of the risk factors in the APT?

Accepted Answer

A)  The factors must be readily observable in risk/return space. 
B)  Each factor must have a pervasive influence on stock returns. 
C)  The factors must influence expected return. 
D)  Factors must be unpredictable. 
A)  The factors must be readily observable in risk/return space. 
B)  Each factor must have a pervasive influence on stock returns. 
C)  The factors must influence expected return. 
D)  Factors must be unpredictable.

Question 2

Which of the following statements is most accurate? The:

Accepted Answer

A)  CML plots individual stocks and efficient portfolios. 
B)  CML plots both efficient and inefficient portfolios. 
C)  SML plots individual securities and efficient portfolios, only. 
D)  SML plots individual securities, inefficient portfolios, and efficient portfolios. 
A)  CML plots individual stocks and efficient portfolios. 
B)  CML plots both efficient and inefficient portfolios. 
C)  SML plots individual securities and efficient portfolios, only. 
D)  SML plots individual securities, inefficient portfolios, and efficient portfolios.

Question 3

Sam has her portfolio invested as indicated in the following table.
 $\begin{array}{|l|c|c|}
\hline \text { Stock } & \$ ' s \text { Invested } & \text { Beta } \
\hline \text { LCAV } & \$ 150,000 & 0.50 \
\hline \text { DFIB } & \$ 100,000 & 0.75 \
\hline \text { GLW } & \$ 100,000 & 0.80 \
\hline \text { DLM } & \$ 50,000 & 1.45 \
\hline
\end{array}$ Find the beta of Sam's portfolio.

Accepted Answer

The total value of Sam's portfolio is $4

Question 4

Which of the following statements about the CML is most accurate? The CML can be downward sloping:

Accepted Answer

A)  ex post. 
B)  when investors expect the stock market to decline. 
C)  when the SML is upward sloping. 
D)  when the risk premium for the market is very high. 
A)  ex post. 
B)  when investors expect the stock market to decline. 
C)  when the SML is upward sloping. 
D)  when the risk premium for the market is very high.

Question 5

Beta is a measure of systematic risk and relates one security's return to another security's return.

Accepted Answer

A) True 
 B)False

Question 6

The expected market return is 16 percent. The risk-free return is 7 percent, and BC Co. has a beta of 1.1. BC's required return is:
A)17.6 percent.
B)16.0 percent.
C)16.9 percent.
D)23.0 percent.

Accepted Answer

The answer of The expected market return is 16 percent....

Question 7

Select the correct statement regarding the market portfolio.

Accepted Answer

A)  It is readily and precisely observable. 
B)  It has no unsystematic risk. 
C)  It has no systematic risk. 
D)  It should be composed of stocks or bonds. 
A)  It is readily and precisely observable. 
B)  It has no unsystematic risk. 
C)  It has no systematic risk. 
D)  It should be composed of stocks or bonds.

Question 8

Which of the following is not an assumption of both the arbitrage pricing theory (APT) and the CAPM?

Accepted Answer

A)  Investors have homogeneous beliefs. 
B)  Investors are risk-averse utility maximizers. 
C)  Borrowing and lending can be done at the rate RF. 
D)  Markets are perfect. 
A)  Investors have homogeneous beliefs. 
B)  Investors are risk-averse utility maximizers. 
C)  Borrowing and lending can be done at the rate RF. 
D)  Markets are perfect.

Question 9

The introduction of risk-free borrowing and lending changes the nature of the original Markowitz efficient frontier by turning the efficient frontier into a straight line.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is an implication of the CAPM?

Accepted Answer

A)  A security with a beta of 0 has an expected return of 0. 
B)  Investors are not compensated for bearing diversifiable risk. 
C)  The risk-return relationship is nonlinear. 
D)  There are two risk factors that drive asset returns. 
A)  A security with a beta of 0 has an expected return of 0. 
B)  Investors are not compensated for bearing diversifiable risk. 
C)  The risk-return relationship is nonlinear. 
D)  There are two risk factors that drive asset returns.

Question 11

Like the CAPM, the APT assumes a single-period investment horizon.

Accepted Answer

A) True 
 B)False

Question 12

Positive theory refers to a theory that:

Accepted Answer

A)  explains how economic participants should act. 
B)  describes how economic participants act. 
C)  is optimistic. 
D)  has been shown to have high explanatory power as a result of empirical testing. 
A)  explains how economic participants should act. 
B)  describes how economic participants act. 
C)  is optimistic. 
D)  has been shown to have high explanatory power as a result of empirical testing.

Question 13

The APT is based on the law of one price, which states two identical assets cannot sell at different prices.

Accepted Answer

A) True 
 B)False

Question 14

Betas of individual securities are unstable over time. What are some characteristics that could cause a company's beta to change over time?

Accepted Answer

A few examples include earning

Question 15

Securities with betas greater than l should have:

Accepted Answer

A)  greater than average diversifiable risk.::::: 
B)  lower than average diversifiable risk. 
C)  required returns higher than the market return. 
D)  no systematic risk. 
A)  greater than average diversifiable risk.::::: 
B)  lower than average diversifiable risk. 
C)  required returns higher than the market return. 
D)  no systematic risk.

Question 16

Which of the following might be used as a factor in an APT factor model?

Accepted Answer

A)  The risk-free rate 
B)  Expected inflation 
C)  Unanticipated deviations from expected inflation 
D)  Loss by fire at a company's manufacturing plant 
A)  The risk-free rate 
B)  Expected inflation 
C)  Unanticipated deviations from expected inflation 
D)  Loss by fire at a company's manufacturing plant

Which of the following is not a characteristic of the risk factors in the APT?

Which of the following statements is most accurate? The:

Sam has her portfolio invested as indicated in the following table. Stock s Invested Beta LCAV \ 150,000 0.50 DFIB \ 100,000 0.75 GLW \ 100,000 0.80 DLM \ 50,000 1.45 Find the beta of Sam's portfolio.

Which of the following statements about the CML is most accurate? The CML can be downward sloping:

Beta is a measure of systematic risk and relates one security's return to another security's return.

The expected market return is 16 percent. The risk-free return is 7 percent, and BC Co. has a beta of 1.1. BC's required return is: A)17.6 percent. B)16.0 percent. C)16.9 percent. D)23.0 percent.

Select the correct statement regarding the market portfolio.

Which of the following is not an assumption of both the arbitrage pricing theory (APT) and the CAPM?

The introduction of risk-free borrowing and lending changes the nature of the original Markowitz efficient frontier by turning the efficient frontier into a straight line.

Which of the following is an implication of the CAPM?

Like the CAPM, the APT assumes a single-period investment horizon.

Positive theory refers to a theory that:

The APT is based on the law of one price, which states two identical assets cannot sell at different prices.

Betas of individual securities are unstable over time. What are some characteristics that could cause a company's beta to change over time?

Securities with betas greater than l should have:

Which of the following might be used as a factor in an APT factor model?

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risk and Return From Investing

Portfolio Theory

Portfolio Selection and Asset Allocation

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

Economymarket Analysis

Sectorindustry Analysis

Company Analysis

Technical Analysis

Bond Yields and Prices

Bonds: Analysis and Strategy

Options

Futures Contracts

Managing Your Financial Assets

Evaluation of Investment Performance

Filters

Exam 9: Capital Market Theory and Asset Pricing Models

Which of the following is not a characteristic of the risk factors in the APT?

Which of the following statements is most accurate? The:

Sam has her portfolio invested as indicated in the following table. Stock s Invested Beta LCAV \ 150,000 0.50 DFIB \ 100,000 0.75 GLW \ 100,000 0.80 DLM \ 50,000 1.45 Find the beta of Sam's portfolio.

Which of the following statements about the CML is most accurate? The CML can be downward sloping:

Beta is a measure of systematic risk and relates one security's return to another security's return.

The expected market return is 16 percent. The risk-free return is 7 percent, and BC Co. has a beta of 1.1. BC's required return is: A)17.6 percent. B)16.0 percent. C)16.9 percent. D)23.0 percent.

Select the correct statement regarding the market portfolio.

Which of the following is not an assumption of both the arbitrage pricing theory (APT) and the CAPM?

The introduction of risk-free borrowing and lending changes the nature of the original Markowitz efficient frontier by turning the efficient frontier into a straight line.

Which of the following is an implication of the CAPM?

Like the CAPM, the APT assumes a single-period investment horizon.

Positive theory refers to a theory that:

The APT is based on the law of one price, which states two identical assets cannot sell at different prices.

Betas of individual securities are unstable over time. What are some characteristics that could cause a company's beta to change over time?

Securities with betas greater than l should have:

Which of the following might be used as a factor in an APT factor model?

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risk and Return From Investing

Portfolio Theory

Portfolio Selection and Asset Allocation

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

Economymarket Analysis

Sectorindustry Analysis

Company Analysis

Technical Analysis

Bond Yields and Prices

Bonds: Analysis and Strategy

Options

Futures Contracts

Managing Your Financial Assets

Evaluation of Investment Performance

Filters