Assume that as a portfolio manager the beta of your portfolio is 1.4 and that your performance is exactly on target with the SML data under condition 1.If the true SML data is given by condition 2,how much does your performance differ from the true SML? $\begin{array}{c} \begin{array}{lll} (1)\\ (2) \end{array} \begin{array}{lll} \mathrm{RFR}=.06 \\ \mathrm{R}_{\mathrm{K}}=.05 \end{array} \begin{array}{lll} \mathrm{R}_{\mathrm{m}}(\mathrm{proxy})=.12 \\ \left.\mathrm{R}_{\mathrm{m}} \text { (true }\right)=.11 \end{array} \end{array}$

A) 2.0% lower B) 0.5% lower C) 0.5 % lower D) 1.0% higher E) 2.0% higher A) 2.0% lower B) 0.5% lower C) 0.5 % lower D) 1.0% higher E) 2.0% higher

Exhibit 8.1 Use the Information Below for the Following Problem(S) \[\begin{array} { c c c } & { \text { Rates of Return } } \\ \text { Year } & \text { RA Computer } & \text { Markat Index } \\ \hline 1 & 13 & 17 \\ 2 & 9 & 15 \\ 3 & - 11 & 6 \\ 4 & 10 & 8 \\ 5 & 11 & 10 \\ 6 & 6 & 12 \end{array}\] -Refer to Exhibit 8.1.Compute the beta for RA Computer using the historic returns presented above.

A) 0.7715 B) 1.2195 C) 1.3893 D) 1.1023 E) -0.7715 A) 0.7715 B) 1.2195 C) 1.3893 D) 1.1023 E) -0.7715

Exhibit 8.3 Use the Information Below for the Following Problem(S) \[\begin{array} { c c c c } \text { Periad } & \begin{array} { c } \text { Return } \\ \text { of Radtran } \\ \text { (Percent) } \end{array} & \begin{array} { c } \text { Praxy } \\ \text { Epecific Index } \\ \text { (Percent) } \end{array} & \begin{array} { c } \text { True } \\ \text { Ceneral Index } \\ \text { (Percent) } \end{array} \\ \hline 1 & 10 & 12 & 15 \\ 2 & 12 & 10 & 13 \\ 3 & - 10 & - 8 & - 8 \\ 4 & - 4 & - 10 & 0 \end{array}\] -Refer to Exhibit 8.3.The covariance between Radtron and the true index is

A) 57.30 B) 86.50 C) 88.00 D) 92.50 E) 107.90 A) 57.30 B) 86.50 C) 88.00 D) 92.50 E) 107.90

Exhibit 8.1 Use the Information Below for the Following Problem(S) \[\begin{array} { c c c } & { \text { Rates of Return } } \\ \text { Year } & \text { RA Computer } & \text { Markat Index } \\ \hline 1 & 13 & 17 \\ 2 & 9 & 15 \\ 3 & - 11 & 6 \\ 4 & 10 & 8 \\ 5 & 11 & 10 \\ 6 & 6 & 12 \end{array}\] -Refer to Exhibit 8.1.If you expected the return on the Market Index to be 12%,what would you expect the return on RA Computer to be?

A) 7.26% B) 6.75% C) 8.00% D) 9.37% E) -3.29% A) 7.26% B) 6.75% C) 8.00% D) 9.37% E) -3.29%

Exhibit 8.3 Use the Information Below for the Following Problem(S) \[\begin{array} { c c c c } \text { Periad } & \begin{array} { c } \text { Return } \\ \text { of Radtran } \\ \text { (Percent) } \end{array} & \begin{array} { c } \text { Praxy } \\ \text { Epecific Index } \\ \text { (Percent) } \end{array} & \begin{array} { c } \text { True } \\ \text { Ceneral Index } \\ \text { (Percent) } \end{array} \\ \hline 1 & 10 & 12 & 15 \\ 2 & 12 & 10 & 13 \\ 3 & - 10 & - 8 & - 8 \\ 4 & - 4 & - 10 & 0 \end{array}\] -Refer to Exhibit 8.3.The average proxy return is

A) 1% B) 2% C) 3% D) 4% E) 5% A) 1% B) 2% C) 3% D) 4% E) 5%

Exhibit 8.1 Use the Information Below for the Following Problem(S) \[\begin{array} { c c c } & { \text { Rates of Return } } \\ \text { Year } & \text { RA Computer } & \text { Markat Index } \\ \hline 1 & 13 & 17 \\ 2 & 9 & 15 \\ 3 & - 11 & 6 \\ 4 & 10 & 8 \\ 5 & 11 & 10 \\ 6 & 6 & 12 \end{array}\] -Refer to Exhibit 8.1.Compute the intercept of the characteristic line for RA Computer.

A) -9.41 B) 11.63 C) 4.92 D) -4.92 E) -7.98 A) -9.41 B) 11.63 C) 4.92 D) -4.92 E) -7.98

Assume that as a portfolio manager the beta of your portfolio is 1.1 and that your performance is exactly on target with the SML data under condition 1.If the true SML data is given by condition 2,how much does your performance differ from the true SML? $\begin{array}{c} \begin{array}{lll} (1)\\ (2) \end{array} \begin{array}{lll} \mathrm{RFR}=.07 \\ \mathrm{R}_{\mathrm{K}}=.06 \end{array} \begin{array}{lll} \mathrm{R}_{\mathrm{m}}(\mathrm{proxy})=.15 \\ \left.\mathrm{R}_{\mathrm{m}} \text { (true }\right)=.12 \end{array} \end{array}$

A) 3.2% lower B) 6.4% lower C) 4.9% lower D) 3.2% higher E) 6.4% higher A) 3.2% lower B) 6.4% lower C) 4.9% lower D) 3.2% higher E) 6.4% higher

Exhibit 8.4 Use the Information Below for the Following Problem(S) \[\begin{array} { c c c c c } \text { Stack } & \text { Beta } & \text { Current Prica } & \text { Expertad Prica } & \text { Expertad Dividend } \\ \hline \mathbf { X } & { [ .8 } & \$ 12.50 & \$ 13.10 & \$ 0.80 \\ Y & 1.1 & \$ 2.25 & 9.76 & \$ 0.20 \\ Z & 2.1 & \$ 25.70 & \$ 30.04 & \$ 0.00 \end{array}\] -Refer to Exhibit 8.4.What are the expected returns for stocks X,Y,and Z for the next period based on the above prices and dividends? &ensp;&ensp;&ensp;&ensp;X&ensp;&ensp; &ensp;Y &ensp;&ensp;&ensp;&ensp;Z

A) 4.8% &ensp;18.3% &ensp;16.9% B) 10.7% &ensp;17.5% &ensp;14.4% C) 11.2%&ensp;20.7% &ensp;16.9% D) 12.3%&ensp; 22.5% &ensp;22.3% E) 13.1%&ensp; 24.3% &ensp;18.2% A) 4.8% &ensp;18.3% &ensp;16.9% B) 10.7% &ensp;17.5% &ensp;14.4% C) 11.2%&ensp;20.7% &ensp;16.9% D) 12.3%&ensp; 22.5% &ensp;22.3% E) 13.1%&ensp; 24.3% &ensp;18.2%

Exam 8: An Introduction to Asset Pricing Models

Consider an asset that has a beta of 1.5.The return on the risk-free asset is 6.5% and the expected return on the stock index is 15%.The estimated return on the asset is 20%.Calculate the alpha for the asset.

(Multiple Choice)

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Question 21

Assume that as a portfolio manager the beta of your portfolio is 1.4 and that your performance is exactly on target with the SML data under condition 1.If the true SML data is given by condition 2,how much does your performance differ from the true SML? (1) (2) =.06 =.05 ()=.12 (true =.11

(Multiple Choice)

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Question 22

Which of the following is not a relaxation of the assumptions for the CAPM?

(Multiple Choice)

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Question 23

Recently your broker has advised you that he believes that the stock of Casey Incorporated is going to rise from $55.00 to $70.00 per share over the next year.You know that the annual return on the S&P 500 has been 12.5% and the 90-day T-bill rate has been yielding 6% per year over the past 10 years.If beta for Casey is 1.3,will you purchase the stock?

(Multiple Choice)

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Question 24

Exhibit 8.6 Use the Information Below for the Following Problem(S) Jonathan Crowley is a portfolio manager for a large pension fund. Last year his portfolio had an actual return of 12.6% with a standard deviation of 13% and a beta of 1.3. The market risk premium for this period of time was 6% and the risk-free rate of return was 5%. -Refer to Exhibit 8.6.Based on the Capital Asset Pricing Model (CAPM),what is the required rate of return for this portfolio?

(Multiple Choice)

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Question 25

Exhibit 8.1 Use the Information Below for the Following Problem(S) Rates of Return Year RA Computer Markat Index 1 13 17 2 9 15 3 -11 6 4 10 8 5 11 10 6 6 12 -Refer to Exhibit 8.1.Compute the beta for RA Computer using the historic returns presented above.

(Multiple Choice)

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Question 26

There can be only one zero-beta portfolio.

(True/False)

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Question 27

The rate of return on a risk free asset should equal the

(Multiple Choice)

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Question 28

If an individual owns only one security the most appropriate measure of risk is:

(Multiple Choice)

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Question 29

Exhibit 8.3 Use the Information Below for the Following Problem(S) Periad Return of Radtran (Percent) Praxy Epecific Index (Percent) True Ceneral Index (Percent) 1 10 12 15 2 12 10 13 3 -10 -8 -8 4 -4 -10 0 -Refer to Exhibit 8.3.The covariance between Radtron and the true index is

(Multiple Choice)

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Question 30

Exhibit 8.1 Use the Information Below for the Following Problem(S) Rates of Return Year RA Computer Markat Index 1 13 17 2 9 15 3 -11 6 4 10 8 5 11 10 6 6 12 -Refer to Exhibit 8.1.If you expected the return on the Market Index to be 12%,what would you expect the return on RA Computer to be?

(Multiple Choice)

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Question 31

Exhibit 8.3 Use the Information Below for the Following Problem(S) Periad Return of Radtran (Percent) Praxy Epecific Index (Percent) True Ceneral Index (Percent) 1 10 12 15 2 12 10 13 3 -10 -8 -8 4 -4 -10 0 -Refer to Exhibit 8.3.The average proxy return is

(Multiple Choice)

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Question 32

If the wrong benchmark (or market portfolio)is selected then

(Multiple Choice)

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Question 33

More recent studies done in 2001 suggest more securities are needed than historically to create a well-diversified portfolio.

(True/False)

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Question 34

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.

(True/False)

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Question 35

Correlation of the market portfolio and the zero-beta portfolio will be linear.

(True/False)

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Question 36

Studies have shown the beta is more stable for portfolios than for individual securities.

(True/False)

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Question 37

Exhibit 8.1 Use the Information Below for the Following Problem(S) Rates of Return Year RA Computer Markat Index 1 13 17 2 9 15 3 -11 6 4 10 8 5 11 10 6 6 12 -Refer to Exhibit 8.1.Compute the intercept of the characteristic line for RA Computer.

(Multiple Choice)

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Question 38

Assume that as a portfolio manager the beta of your portfolio is 1.1 and that your performance is exactly on target with the SML data under condition 1.If the true SML data is given by condition 2,how much does your performance differ from the true SML? (1) (2) =.07 =.06 ()=.15 (true =.12

(Multiple Choice)

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Question 39

Exhibit 8.4 Use the Information Below for the Following Problem(S) Stack Beta Current Prica Expertad Prica Expertad Dividend [.8 \ 12.50 \ 13.10 \ 0.80 Y 1.1 \ 2.25 9.76 \ 0.20 Z 2.1 \ 25.70 \ 30.04 \ 0.00 -Refer to Exhibit 8.4.What are the expected returns for stocks X,Y,and Z for the next period based on the above prices and dividends? X Y Z

(Multiple Choice)

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Question 40

Exam 8: An Introduction to Asset Pricing Models

Consider an asset that has a beta of 1.5.The return on the risk-free asset is 6.5% and the expected return on the stock index is 15%.The estimated return on the asset is 20%.Calculate the alpha for the asset.

Assume that as a portfolio manager the beta of your portfolio is 1.4 and that your performance is exactly on target with the SML data under condition 1.If the true SML data is given by condition 2,how much does your performance differ from the true SML? (1) (2) =.06 =.05 ()=.12 (true =.11

Which of the following is not a relaxation of the assumptions for the CAPM?

Exhibit 8.1 Use the Information Below for the Following Problem(S) Rates of Return Year RA Computer Markat Index 1 13 17 2 9 15 3 -11 6 4 10 8 5 11 10 6 6 12 -Refer to Exhibit 8.1.Compute the beta for RA Computer using the historic returns presented above.

There can be only one zero-beta portfolio.

The rate of return on a risk free asset should equal the

If an individual owns only one security the most appropriate measure of risk is:

Exhibit 8.3 Use the Information Below for the Following Problem(S) Periad Return of Radtran (Percent) Praxy Epecific Index (Percent) True Ceneral Index (Percent) 1 10 12 15 2 12 10 13 3 -10 -8 -8 4 -4 -10 0 -Refer to Exhibit 8.3.The covariance between Radtron and the true index is

Exhibit 8.1 Use the Information Below for the Following Problem(S) Rates of Return Year RA Computer Markat Index 1 13 17 2 9 15 3 -11 6 4 10 8 5 11 10 6 6 12 -Refer to Exhibit 8.1.If you expected the return on the Market Index to be 12%,what would you expect the return on RA Computer to be?

Exhibit 8.3 Use the Information Below for the Following Problem(S) Periad Return of Radtran (Percent) Praxy Epecific Index (Percent) True Ceneral Index (Percent) 1 10 12 15 2 12 10 13 3 -10 -8 -8 4 -4 -10 0 -Refer to Exhibit 8.3.The average proxy return is

If the wrong benchmark (or market portfolio)is selected then

More recent studies done in 2001 suggest more securities are needed than historically to create a well-diversified portfolio.

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.

Correlation of the market portfolio and the zero-beta portfolio will be linear.

Studies have shown the beta is more stable for portfolios than for individual securities.

Exhibit 8.1 Use the Information Below for the Following Problem(S) Rates of Return Year RA Computer Markat Index 1 13 17 2 9 15 3 -11 6 4 10 8 5 11 10 6 6 12 -Refer to Exhibit 8.1.Compute the intercept of the characteristic line for RA Computer.

Assume that as a portfolio manager the beta of your portfolio is 1.1 and that your performance is exactly on target with the SML data under condition 1.If the true SML data is given by condition 2,how much does your performance differ from the true SML? (1) (2) =.07 =.06 ()=.15 (true =.12

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

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