Exhibit 9.2 Use the Information Below for the Following Problem(S) Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas). \[\begin{array} { c c c } \text { Stack } & \text { Factor 1 Londine } & \text { Factor } 2 \text { Londing } \\ \hline X & - [ .55 & 1.2 \\ Y & - [ .10 & 0.85 \\ Z & 0.35 & 0.5 \end{array}\] The zero-beta return (??) = 3%, and the risk premia are ?? = 10%, ?? = 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2.The expected returns for stock X,stock Y,and stock Z are

A) 3%, 8%, 10% B) 7.1%, 10.5%, 8.8% C) 7.1%, 8.8%, 10.5% D) 10%, 5.5%, 14% E) None of the above. A) 3%, 8%, 10% B) 7.1%, 10.5%, 8.8% C) 7.1%, 8.8%, 10.5% D) 10%, 5.5%, 14% E) None of the above.

Under the following conditions,what are the expected returns for stocks A and B? $\begin{array}{ll} \lambda^{0}=0.035 & \mathrm{~b}_{\mathrm{a}, 1}=1.00 \\ \mathrm{k}_{1}=0.05 & \mathrm{~b}_{\mathrm{a}, 2}=1.40 \\ \mathrm{k}_{2}=0.06 & \mathrm{~b}_{\mathrm{b}, 1}=1.70 \\ & \mathrm{~b}_{\mathrm{b}, 2}=0.62 \end{array}$

A) 14.8% and 13.8% B) 19.8% and 29.5% C) 16.0% and 19.8% D) 16.9% and 15.9% E) None of the above A) 14.8% and 13.8% B) 19.8% and 29.5% C) 16.0% and 19.8% D) 16.9% and 15.9% E) None of the above

Under the following conditions,what are the expected returns for stocks X and Y? \[\begin{array} { l l } \lambda ^ { 0 } = 0.04 & b _ { x , 1 } = 1.2 \\ k _ { 1 } = 0.035 & b _ { x , 7 } = 0.75 \\ k _ { \mathbf { z } } = 0.045 & b _ { z , 1 } = 0.65 \\ & b _ { z , z } = 1.45 \end{array}\]

A) 11.58% and 12.8% B) 15.65% and 18.23% C) 13.27% and 15.6% D) 18.2% and 16.45% E) None of the above A) 11.58% and 12.8% B) 15.65% and 18.23% C) 13.27% and 15.6% D) 18.2% and 16.45% E) None of the above

Exhibit 9.3 Use the Information Below for the Following Problem(S) Stocks A, B, and C have two risk factors with the following beta coefficients. The zero-beta return (??) = .025 and the risk premiums for the two factors are (??) = .12 and (??) = .10. \[\begin{array} { c c c } \text { Stack } & \text { Factor } 1 w _ { i 1 } & \text { Factor } 2 w _ { i 2 } \\ \hline \mathrm { A } & - 0.25 & 1.1 \\ \mathrm {~B} & - 0.05 & 0.9 \\ \mathrm { C } & 0.01 & 0.6 \end{array}\] -Refer to Exhibit 9.3.Calculate the expected returns for stocks A,B,C. &ensp;&ensp;&ensp;&ensp;A&ensp;&ensp;&ensp;B&ensp;&ensp;&ensp;&ensp; C

A) 0.082&ensp; 0.091 &ensp;0.033 B) 0.105 &ensp;0.109&ensp; 0.032 C) 0.132&ensp; 0.128 &ensp;0.033 D) 0.165 &ensp;0.121 &ensp;0.032 E) 0.850 &ensp;0.850&ensp; 0.610 A) 0.082&ensp; 0.091 &ensp;0.033 B) 0.105 &ensp;0.109&ensp; 0.032 C) 0.132&ensp; 0.128 &ensp;0.033 D) 0.165 &ensp;0.121 &ensp;0.032 E) 0.850 &ensp;0.850&ensp; 0.610

Exhibit 9.2 Use the Information Below for the Following Problem(S) Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas). \[\begin{array} { c c c } \text { Stack } & \text { Factor 1 Londine } & \text { Factor } 2 \text { Londing } \\ \hline X & - [ .55 & 1.2 \\ Y & - [ .10 & 0.85 \\ Z & 0.35 & 0.5 \end{array}\] The zero-beta return (??) = 3%, and the risk premia are ?? = 10%, ?? = 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2.The new prices now for stocks X,Y,and Z that will not allow for arbitrage profits are

A) $53.55, $54.4, $55.25 B) $45.35, $54.4, $55.25 C) $55.55, $56.35, $57.15 D) $50, $50, $50 E) $51.35, $47.79, $51.58. A) $53.55, $54.4, $55.25 B) $45.35, $54.4, $55.25 C) $55.55, $56.35, $57.15 D) $50, $50, $50 E) $51.35, $47.79, $51.58.

Under the following conditions,what are the expected returns for stocks A and C? $\begin{array}{ll} \lambda^{0}=0.07 & b_{\mathrm{a}, 1}=0.92 \\ k_{1}=0.04 & b_{\mathrm{a}, 2}=1.10 \\ \mathrm{k}_{2}=0.03 & \mathrm{~b}_{\mathrm{c}, 1}=1.16 \\ & \mathrm{~b}_{\mathrm{c}, 2}=2.35 \end{array}$

A) 14.1% and 17.65% B) 14.1% and 18.45% C) 17.65% and 18.45% D) 18.45% and 17.52% E) None of the above A) 14.1% and 17.65% B) 14.1% and 18.45% C) 17.65% and 18.45% D) 18.45% and 17.52% E) None of the above

Exhibit 9.3 Use the Information Below for the Following Problem(S) Stocks A, B, and C have two risk factors with the following beta coefficients. The zero-beta return (??) = .025 and the risk premiums for the two factors are (??) = .12 and (??) = .10. \[\begin{array} { c c c } \text { Stack } & \text { Factor } 1 w _ { i 1 } & \text { Factor } 2 w _ { i 2 } \\ \hline \mathrm { A } & - 0.25 & 1.1 \\ \mathrm {~B} & - 0.05 & 0.9 \\ \mathrm { C } & 0.01 & 0.6 \end{array}\] -Refer to Exhibit 9.3.Suppose that you know that the prices of stocks A,B,and C will be $10.95,22.18,and $30.89,respectively.Based on this information

A) All three stocks are overvalued. B) All three stocks are undervalued. C) Stock a is undervalued, stock b is properly valued, stock c is undervalued. D) Stock a is undervalued, stock b is properly valued, stock c is overvalued. E) Stock a is overvalued, stock b is overvalued, stock c is undervalued. A) All three stocks are overvalued. B) All three stocks are undervalued. C) Stock a is undervalued, stock b is properly valued, stock c is undervalued. D) Stock a is undervalued, stock b is properly valued, stock c is overvalued. E) Stock a is overvalued, stock b is overvalued, stock c is undervalued.

Exhibit 9.2 Use the Information Below for the Following Problem(S) Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas). \[\begin{array} { c c c } \text { Stack } & \text { Factor 1 Londine } & \text { Factor } 2 \text { Londing } \\ \hline X & - [ .55 & 1.2 \\ Y & - [ .10 & 0.85 \\ Z & 0.35 & 0.5 \end{array}\] The zero-beta return (??) = 3%, and the risk premia are ?? = 10%, ?? = 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2.Assume that you wish to create a portfolio with no net wealth invested and the portfolio that achieves this has 50% in stock X,-100% in stock Y,and 50% in stock Z.The net arbitrage profit is

A) $8 B) $5 C) $7 D) $12 E) $15 A) $8 B) $5 C) $7 D) $12 E) $15

Exhibit 9.2 Use the Information Below for the Following Problem(S) Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas). \[\begin{array} { c c c } \text { Stack } & \text { Factor 1 Londine } & \text { Factor } 2 \text { Londing } \\ \hline X & - [ .55 & 1.2 \\ Y & - [ .10 & 0.85 \\ Z & 0.35 & 0.5 \end{array}\] The zero-beta return (??) = 3%, and the risk premia are ?? = 10%, ?? = 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2.Assume that you wish to create a portfolio with no net wealth invested.The portfolio that achieves this has 50% in stock X,-100% in stock Y,and 50% in stock Z.The weighted exposure to risk factor 2 for stocks X,Y,and Z are

A) 0.50, -1.0, 0.50 B) -0.50, 1.0, -0.50 C) 0.60, -0.85, 0.25 D) -0.275, 0.10, 0.175 E) None of the above. A) 0.50, -1.0, 0.50 B) -0.50, 1.0, -0.50 C) 0.60, -0.85, 0.25 D) -0.275, 0.10, 0.175 E) None of the above.

Exam 9: Multifactor Models of Risk and Return

Exhibit 9.2 Use the Information Below for the Following Problem(S) Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas). Stack Factor 1 Londine Factor 2 Londing X -[.55 1.2 Y -[.10 0.85 Z 0.35 0.5 The zero-beta return (??) = 3%, and the risk premia are ?? = 10%, ?? = 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2.The expected returns for stock X,stock Y,and stock Z are

(Multiple Choice)

4.7/5

(39)

Question 41

One approach for using multifactor models is to use factors that capture systematic risk.Which of the following is not a common factor used in this approach?

(Multiple Choice)

4.9/5

(37)

Question 42

Arbitrage Pricing Theory (APT)specifies the exact number of risk factors and their identity

(True/False)

4.9/5

(42)

Question 43

Exhibit 9.1 Use the Information Below for the Following Problem(S) (1) Capital markets are perfectly competitive. (2) Quadratic utility function. (3) Investors prefer more wealth to less wealth with certainty. (4) Normally distributed security returns. (5) Representation as a K factor model. (6) A market portfolio that is mean-variance efficient. -Refer to Exhibit 9.1.In the list above which are assumptions of the Arbitrage Pricing Model?

(Multiple Choice)

5.0/5

(40)

Question 44

Under the following conditions,what are the expected returns for stocks A and B? =0.035 =1.00 =0.05 =1.40 =0.06 =1.70 =0.62

(Multiple Choice)

4.9/5

(35)

Question 45

Under the following conditions,what are the expected returns for stocks X and Y? =0.04 =1.2 =0.035 =0.75 =0.045 =0.65 =1.45

(Multiple Choice)

4.9/5

(35)

Question 46

Dhrymes,Friend,and Gultekin,in their study of the APT,found that

(Multiple Choice)

4.9/5

(34)

Question 47

Exhibit 9.3 Use the Information Below for the Following Problem(S) Stocks A, B, and C have two risk factors with the following beta coefficients. The zero-beta return (??) = .025 and the risk premiums for the two factors are (??) = .12 and (??) = .10. Stack Factor 1 Factor 2 -0.25 1.1 -0.05 0.9 0.01 0.6 -Refer to Exhibit 9.3.Calculate the expected returns for stocks A,B,C. A B C

(Multiple Choice)

4.9/5

(40)

Question 48

Empirical tests of the APT model have found that as the size of a portfolio increased so did the number of factors.

(True/False)

4.7/5

(43)

Question 49

Exhibit 9.2 Use the Information Below for the Following Problem(S) Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas). Stack Factor 1 Londine Factor 2 Londing X -[.55 1.2 Y -[.10 0.85 Z 0.35 0.5 The zero-beta return (??) = 3%, and the risk premia are ?? = 10%, ?? = 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2.The new prices now for stocks X,Y,and Z that will not allow for arbitrage profits are

(Multiple Choice)

4.9/5

(32)

Question 50

Under the following conditions,what are the expected returns for stocks A and C? =0.07 =0.92 =0.04 =1.10 =0.03 =1.16 =2.35

(Multiple Choice)

4.9/5

(30)

Question 51

The APT assumes that capital markets are perfectly competitive.

(True/False)

4.9/5

(39)

Question 52

Exhibit 9.3 Use the Information Below for the Following Problem(S) Stocks A, B, and C have two risk factors with the following beta coefficients. The zero-beta return (??) = .025 and the risk premiums for the two factors are (??) = .12 and (??) = .10. Stack Factor 1 Factor 2 -0.25 1.1 -0.05 0.9 0.01 0.6 -Refer to Exhibit 9.3.Suppose that you know that the prices of stocks A,B,and C will be $10.95,22.18,and $30.89,respectively.Based on this information

(Multiple Choice)

4.8/5

(39)

Question 53

According to the APT model all securities should be priced such that riskless arbitrage is possible.

(True/False)

4.8/5

(33)

Question 54

A major advantage of the Arbitrage Pricing Theory is the risk factors are clearly universally identifiable.

(True/False)

4.8/5

(37)

Question 55

Studies indicate that neither firm size nor the time interval used are important when computing beta.

(True/False)

4.8/5

(39)

Question 56

Exhibit 9.2 Use the Information Below for the Following Problem(S) Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas). Stack Factor 1 Londine Factor 2 Londing X -[.55 1.2 Y -[.10 0.85 Z 0.35 0.5 The zero-beta return (??) = 3%, and the risk premia are ?? = 10%, ?? = 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2.Assume that you wish to create a portfolio with no net wealth invested and the portfolio that achieves this has 50% in stock X,-100% in stock Y,and 50% in stock Z.The net arbitrage profit is

(Multiple Choice)

4.9/5

(43)

Question 57

Fama and French suggest a three factor model approach.Which of the following is not included in their approach?

(Multiple Choice)

4.9/5

(30)

Question 58

Exhibit 9.2 Use the Information Below for the Following Problem(S) Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas). Stack Factor 1 Londine Factor 2 Londing X -[.55 1.2 Y -[.10 0.85 Z 0.35 0.5 The zero-beta return (??) = 3%, and the risk premia are ?? = 10%, ?? = 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2.Assume that you wish to create a portfolio with no net wealth invested.The portfolio that achieves this has 50% in stock X,-100% in stock Y,and 50% in stock Z.The weighted exposure to risk factor 2 for stocks X,Y,and Z are

(Multiple Choice)

4.9/5

(44)

Question 59

Exam 9: Multifactor Models of Risk and Return

One approach for using multifactor models is to use factors that capture systematic risk.Which of the following is not a common factor used in this approach?

Arbitrage Pricing Theory (APT)specifies the exact number of risk factors and their identity

Under the following conditions,what are the expected returns for stocks A and B? =0.035 =1.00 =0.05 =1.40 =0.06 =1.70 =0.62

Under the following conditions,what are the expected returns for stocks X and Y? =0.04 =1.2 =0.035 =0.75 =0.045 =0.65 =1.45

Dhrymes,Friend,and Gultekin,in their study of the APT,found that

Empirical tests of the APT model have found that as the size of a portfolio increased so did the number of factors.

Under the following conditions,what are the expected returns for stocks A and C? =0.07 =0.92 =0.04 =1.10 =0.03 =1.16 =2.35

The APT assumes that capital markets are perfectly competitive.

According to the APT model all securities should be priced such that riskless arbitrage is possible.

A major advantage of the Arbitrage Pricing Theory is the risk factors are clearly universally identifiable.

Studies indicate that neither firm size nor the time interval used are important when computing beta.

Fama and French suggest a three factor model approach.Which of the following is not included in their approach?

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

An Introduction to Asset Pricing Models

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

Filters