Question 1

In a well diversified portfolio,__________ risk is negligible.

Accepted Answer

A)  nondiversifiable 
B)  market 
C)  systematic 
D)  unsystematic 
A)  nondiversifiable 
B)  market 
C)  systematic 
D)  unsystematic

Question 2

If the beta of the market index is 1.0 and the standard deviation of the market index increases from 12% to 18%,what is the new beta of the market index?

Accepted Answer

A)  0.8 
B)  1.0 
C)  1.2 
D)  1.5 
A)  0.8 
B)  1.0 
C)  1.2 
D)  1.5

Question 3

The variance of the return on the market portfolio is .0400 and the expected return on the market portfolio is 20%.If the risk-free rate of return is 10%,the market degree of risk aversion,A,is _________.

Accepted Answer

A)  0.5 
B)  2.5 
C)  3.5 
D)  5.0 
A)  0.5 
B)  2.5 
C)  3.5 
D)  5.0

Question 4

If enough investors decide to purchase stocks they are likely to drive up stock prices thereby causing _____________ and ___________.

Accepted Answer

A)  expected returns to fall; risk premiums to fall 
B)  expected returns to rise; risk premiums to fall 
C)  expected returns to rise; risk premiums to rise 
D)  expected returns to fall; risk premiums to rise 
A)  expected returns to fall; risk premiums to fall 
B)  expected returns to rise; risk premiums to fall 
C)  expected returns to rise; risk premiums to rise 
D)  expected returns to fall; risk premiums to rise

Question 5

Using the index model,the alpha of a stock is 3.0%,the beta if 1.1 and the market return is 10%.What is the residual given an actual return of 15%?

Accepted Answer

A)  0.0% 
B)  1.0% 
C)  2.0% 
D)  3.0% 
A)  0.0% 
B)  1.0% 
C)  2.0% 
D)  3.0%

Question 6

According to the capital asset pricing model,a fairly priced security will plot _________.

Accepted Answer

A)  above the security market line 
B)  along the security market line 
C)  below the security market line 
D)  at no relation to the security market line 
A)  above the security market line 
B)  along the security market line 
C)  below the security market line 
D)  at no relation to the security market line

Question 7

In a world where the CAPM holds which one of the following is not a true statement regarding the capital market line?

Accepted Answer

A)  The capital market line always has a positive slope 
B)  The capital market line is also called the security market line 
C)  The capital market line is the best attainable capital allocation line 
D)  The capital market line is the line from the risk-free rate through the market portfolio 
A)  The capital market line always has a positive slope 
B)  The capital market line is also called the security market line 
C)  The capital market line is the best attainable capital allocation line 
D)  The capital market line is the line from the risk-free rate through the market portfolio

Question 8

Building a zero-investment portfolio will always involve _____________.

Accepted Answer

A)  an unknown mixture of short and long positions 
B)  only short positions 
C)  only long positions 
D)  equal investments in a short and a long position 
A)  an unknown mixture of short and long positions 
B)  only short positions 
C)  only long positions 
D)  equal investments in a short and a long position

Question 9

You have a $50,000 portfolio consisting of Intel,GE and Con Edison.You put $20,000 in Intel,$12,000 in GE and the rest in Con Edison.Intel,GE and Con Edison have betas of 1.3,1.0 and 0.8 respectively.What is your portfolio beta?

Accepted Answer

A)  1.048 
B)  1.033 
C)  1.000 
D)  1.037 
A)  1.048 
B)  1.033 
C)  1.000 
D)  1.037

Question 10

According to the capital asset pricing model,fairly priced securities have _________.

Accepted Answer

A)  negative betas 
B)  positive alphas 
C)  positive betas 
D)  zero alphas 
A)  negative betas 
B)  positive alphas 
C)  positive betas 
D)  zero alphas

Question 11

Consider the multi-factor APT with two factors.Portfolio A has a beta of 0.5 on factor 1 and a beta of 1.25 on factor 2.The risk premiums on the factors 1 and 2 portfolios are 1% and 7% respectively.The risk-free rate of return is 7%.The expected return on portfolio A is __________ if no arbitrage opportunities exist.

Accepted Answer

A)  13.5% 
B)  15.0% 
C)  16.25% 
D)  23.0% 
A)  13.5% 
B)  15.0% 
C)  16.25% 
D)  23.0%

Question 12

The two factor model on a stock provides a risk premium for exposure to market risk of 9%,a risk premium for exposure to interest rate of (-1.3%),and a risk free rate of 3.5%.What is the expected return on the stock?

Accepted Answer

A)  8.7% 
B)  11.2% 
C)  13.8% 
D)  15.2% 
A)  8.7% 
B)  11.2% 
C)  13.8% 
D)  15.2%

Question 13

What is the expected return for a portfolio with a beta of 0.5?

Accepted Answer

A)  5% 
B)  7.5% 
C)  12.5% 
D)  15% 
A)  5% 
B)  7.5% 
C)  12.5% 
D)  15%

Question 14

An important characteristic of market equilibrium is _______________.

Accepted Answer

A)  the presence of many opportunities for creating zero-investment portfolios 
B)  all investors exhibit the same degree of risk aversion 
C)  the absence of arbitrage opportunities 
D)  the a lack of liquidity in the market 
A)  the presence of many opportunities for creating zero-investment portfolios 
B)  all investors exhibit the same degree of risk aversion 
C)  the absence of arbitrage opportunities 
D)  the a lack of liquidity in the market

Question 15

Two investment advisors are comparing performance.Advisor A averaged a 20% return with a portfolio beta of 1.5 and Advisor B averaged a 15% return with a portfolio beta of 1.2.If the T-bill rate was 5% and the market return during the period was 13%,which advisor was the better stock picker?

Accepted Answer

A)  Advisor A was better because he generated a larger alpha 
B)  Advisor B was better because he generated a larger alpha 
C)  Advisor A was better because he generated a higher return 
D)  Advisor B was better because he achieved a good return with a lower beta 
A)  Advisor A was better because he generated a larger alpha 
B)  Advisor B was better because he generated a larger alpha 
C)  Advisor A was better because he generated a higher return 
D)  Advisor B was better because he achieved a good return with a lower beta

Question 16

Consider the CAPM.The expected return on the market is 18%.The expected return on a stock with a beta of 1.2 is 20%.What is the risk-free rate?

Accepted Answer

A)  2% 
B)  6% 
C)  8% 
D)  12% 
A)  2% 
B)  6% 
C)  8% 
D)  12%

Question 17

The risk premium for exposure to aluminum commodity prices is 4% and the firm has a beta relative to aluminum commodity prices of 0.6.The risk premium for exposure to GDP changes is 6% and the firm has a beta relative to GDP of 1.2.If the risk free rate is 4.0%,what is the expected return on this stock?

Accepted Answer

A)  10.0% 
B)  11.5% 
C)  13.6% 
D)  14.0% 
A)  10.0% 
B)  11.5% 
C)  13.6% 
D)  14.0%

Question 18

What is the beta for a portfolio with an expected return of 12.5%?

Accepted Answer

A)  0 
B)  1 
C)  1.5 
D)  2 
A)  0 
B)  1 
C)  1.5 
D)  2

Question 19

The measure of risk used in the Capital Asset Pricing Model is ___________.

Accepted Answer

A)  specific risk 
B)  the standard deviation of returns 
C)  reinvestment risk 
D)  beta 
A)  specific risk 
B)  the standard deviation of returns 
C)  reinvestment risk 
D)  beta

Question 20

In a study conducted by Jagannathan and Wang,it was found that the performance of beta in explaining security returns could be considerably enhanced by _____________.
I.including the unsystematic risk of a stock
II.including human capital in the market portfolio
III.allowing for changes in beta over time

Accepted Answer

A)  I and II only 
B)  II and III only 
C)  I and III only 
D)  I, II and III 
A)  I and II only 
B)  II and III only 
C)  I and III only 
D)  I, II and III

In a well diversified portfolio,__________ risk is negligible.

If the beta of the market index is 1.0 and the standard deviation of the market index increases from 12% to 18%,what is the new beta of the market index?

The variance of the return on the market portfolio is .0400 and the expected return on the market portfolio is 20%.If the risk-free rate of return is 10%,the market degree of risk aversion,A,is _________.

If enough investors decide to purchase stocks they are likely to drive up stock prices thereby causing ___ and _.

Using the index model,the alpha of a stock is 3.0%,the beta if 1.1 and the market return is 10%.What is the residual given an actual return of 15%?

According to the capital asset pricing model,a fairly priced security will plot _________.

In a world where the CAPM holds which one of the following is not a true statement regarding the capital market line?

Building a zero-investment portfolio will always involve _____________.

You have a $50,000 portfolio consisting of Intel,GE and Con Edison.You put $20,000 in Intel,$12,000 in GE and the rest in Con Edison.Intel,GE and Con Edison have betas of 1.3,1.0 and 0.8 respectively.What is your portfolio beta?

According to the capital asset pricing model,fairly priced securities have _________.

The two factor model on a stock provides a risk premium for exposure to market risk of 9%,a risk premium for exposure to interest rate of (-1.3%),and a risk free rate of 3.5%.What is the expected return on the stock?

What is the expected return for a portfolio with a beta of 0.5?

An important characteristic of market equilibrium is _______________.

Two investment advisors are comparing performance.Advisor A averaged a 20% return with a portfolio beta of 1.5 and Advisor B averaged a 15% return with a portfolio beta of 1.2.If the T-bill rate was 5% and the market return during the period was 13%,which advisor was the better stock picker?

Consider the CAPM.The expected return on the market is 18%.The expected return on a stock with a beta of 1.2 is 20%.What is the risk-free rate?

What is the beta for a portfolio with an expected return of 12.5%?

The measure of risk used in the Capital Asset Pricing Model is ___________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

Exam 7: Capital Asset Pricing and Arbitrage Pricing Theory

In a well diversified portfolio,__________ risk is negligible.

If the beta of the market index is 1.0 and the standard deviation of the market index increases from 12% to 18%,what is the new beta of the market index?

The variance of the return on the market portfolio is .0400 and the expected return on the market portfolio is 20%.If the risk-free rate of return is 10%,the market degree of risk aversion,A,is _________.

If enough investors decide to purchase stocks they are likely to drive up stock prices thereby causing _____________ and ___________.

Using the index model,the alpha of a stock is 3.0%,the beta if 1.1 and the market return is 10%.What is the residual given an actual return of 15%?

According to the capital asset pricing model,a fairly priced security will plot _________.

In a world where the CAPM holds which one of the following is not a true statement regarding the capital market line?

Building a zero-investment portfolio will always involve _____________.

You have a $50,000 portfolio consisting of Intel,GE and Con Edison.You put $20,000 in Intel,$12,000 in GE and the rest in Con Edison.Intel,GE and Con Edison have betas of 1.3,1.0 and 0.8 respectively.What is your portfolio beta?

According to the capital asset pricing model,fairly priced securities have _________.

The two factor model on a stock provides a risk premium for exposure to market risk of 9%,a risk premium for exposure to interest rate of (-1.3%),and a risk free rate of 3.5%.What is the expected return on the stock?

What is the expected return for a portfolio with a beta of 0.5?

An important characteristic of market equilibrium is _______________.

Two investment advisors are comparing performance.Advisor A averaged a 20% return with a portfolio beta of 1.5 and Advisor B averaged a 15% return with a portfolio beta of 1.2.If the T-bill rate was 5% and the market return during the period was 13%,which advisor was the better stock picker?

Consider the CAPM.The expected return on the market is 18%.The expected return on a stock with a beta of 1.2 is 20%.What is the risk-free rate?

What is the beta for a portfolio with an expected return of 12.5%?

The measure of risk used in the Capital Asset Pricing Model is ___________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

If enough investors decide to purchase stocks they are likely to drive up stock prices thereby causing ___ and _.