Question 1

What does the APT assume about trading costs? And why does that matter?

Accepted Answer

A key assumption for the APT to work is

Question 2

Suppose that we have identiﬁed three important systematic risk factors given by exports, inﬂation, and industrial production.In the beginning of the year, growth in these three factors is estimated at
-1%, 2.5%, and 3.5% respectively.However, actual growth in these factors turn out to be 1%, -2%, and
2%)The factor betas are given by bEX = 1.8, bI = 0.7, and bIP = 1.0.The expected return on the equity
Is 6%.Calculate the equity's total return if the company announces that they had an industrial
Accident and the operating facilities will closed down for some time thus resulting in a loss by the
Company of 7% in return.

Accepted Answer

A) -4.05% 
B) -2.05% 
C) 4.55% 
D) 0.40% 
E) 1.85% 
A) -4.05% 
B) -2.05% 
C) 4.55% 
D) 0.40% 
E) 1.85%

Question 3

Suppose the JumpStart Corporation's ordinary equity has a beta of 0.8.If the risk-free rate is 4% and the expected market return is 9%, the expected return for JumpStart's common is:

Accepted Answer

A) 3.2%. 
B) 4.0%. 
C) 7.2%. 
D) 8.0%. 
E) 9.0%. 
A) 3.2%. 
B) 4.0%. 
C) 7.2%. 
D) 8.0%. 
E) 9.0%.

Question 4

Which of the following is true about the impact on market price of a security when a company makes an announcement and the market has discounted the news?

Accepted Answer

A) The price will change a great deal; even though the impact is primarily in the future, the
Future value is discounted to the present. 
B) The price will change little, if at all, since the impact is primarily in the future. 
C) The price will change little, if at all, since the market considers this information
Unimportant. 
D) The price will change little, if at all, since the market considers this information untrue. 
E) The price will change little, if at all, since the market has already included this information
In the security's price. 
A) The price will change a great deal; even though the impact is primarily in the future, the
Future value is discounted to the present. 
B) The price will change little, if at all, since the impact is primarily in the future. 
C) The price will change little, if at all, since the market considers this information
Unimportant. 
D) The price will change little, if at all, since the market considers this information untrue. 
E) The price will change little, if at all, since the market has already included this information
In the security's price.

Question 5

Which of the following statements is/are true?

Accepted Answer

A) Both APT and CAPM argue that expected excess return must be proportional to the
Beta(s). 
B) APT and CAPM are the only approaches to measure expected returns in risky assets. 
C) Both CAPM and APT are risk-based models. 
D) Both A and B are true. 
E) Both A and C are true. 
A) Both APT and CAPM argue that expected excess return must be proportional to the
Beta(s). 
B) APT and CAPM are the only approaches to measure expected returns in risky assets. 
C) Both CAPM and APT are risk-based models. 
D) Both A and B are true. 
E) Both A and C are true.

Question 6

Explain the conceptual differences in the theoretical development of the CAPM and APT.

Accepted Answer

CAPM depends on the eﬃcient set and inco

Question 7

Consider the following two statements about inﬂation betas: (i) If a company's share price return is negatively related to the risk of inﬂation, it has a positive
Inﬂation beta.
(ii) Inﬂation betas are either positive for all equities, or negative for all equities, since inﬂation is a
Systematic risk factor.

Accepted Answer

A) (i) is correct, and (ii) is incorrect. 
B) (ii) is correct and (i) is incorrect. 
C) Both (i) and (ii) are correct. 
D) Both (i) and (ii) are incorrect. 
E) Inﬂation is never priced in the APT. 
A) (i) is correct, and (ii) is incorrect. 
B) (ii) is correct and (i) is incorrect. 
C) Both (i) and (ii) are correct. 
D) Both (i) and (ii) are incorrect. 
E) Inﬂation is never priced in the APT.

Question 8

The acronym APT stands for:

Accepted Answer

A) Arbitrage Pricing Techniques. 
B) Absolute Proﬁt Theory. 
C) Arbitrage Pricing Theory. 
D) Asset Puting Theory. 
E) Assured Price Techniques. 
A) Arbitrage Pricing Techniques. 
B) Absolute Proﬁt Theory. 
C) Arbitrage Pricing Theory. 
D) Asset Puting Theory. 
E) Assured Price Techniques.

What does the APT assume about trading costs? And why does that matter?

Suppose the JumpStart Corporation's ordinary equity has a beta of 0.8.If the risk-free rate is 4% and the expected market return is 9%, the expected return for JumpStart's common is:

Which of the following is true about the impact on market price of a security when a company makes an announcement and the market has discounted the news?

Which of the following statements is/are true?

Explain the conceptual differences in the theoretical development of the CAPM and APT.

The acronym APT stands for:

Introduction to Corporate Finance

Corporate Governance

Financial Statement Analysis

Discounted Cash Flow Valuation

Bond, Equity and Firm Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options and Capital Budgeting

Risk and Return: Lessons From Market History

Risk and Return: the Capital Asset Pricing Model

Risk, Cost of Capital and Capital Budgeting

Efficient Capital Markets and Behavioural Finance

Long-Term Financing: an Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Equity Financing

Debt Financing

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Financial Risk Management With Derivatives

Short-Term Finance and Planning

Short-Term Capital Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

Filters

Exam 11: Factor Models and the Arbitrage Pricing Theory

What does the APT assume about trading costs? And why does that matter?

Suppose the JumpStart Corporation's ordinary equity has a beta of 0.8.If the risk-free rate is 4% and the expected market return is 9%, the expected return for JumpStart's common is:

Which of the following is true about the impact on market price of a security when a company makes an announcement and the market has discounted the news?

Which of the following statements is/are true?

Explain the conceptual differences in the theoretical development of the CAPM and APT.

The acronym APT stands for:

Introduction to Corporate Finance

Corporate Governance

Financial Statement Analysis

Discounted Cash Flow Valuation

Bond, Equity and Firm Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options and Capital Budgeting

Risk and Return: Lessons From Market History

Risk and Return: the Capital Asset Pricing Model

Risk, Cost of Capital and Capital Budgeting

Efficient Capital Markets and Behavioural Finance

Long-Term Financing: an Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Equity Financing

Debt Financing

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Financial Risk Management With Derivatives

Short-Term Finance and Planning

Short-Term Capital Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

Filters