Exam 9: Risk and Return Theories: II

The capital asset pricing model states that the expected return of a security is equal to the riskfree rate of return plus:

State the assumptions, which underlie the capital market theory distinguishing between assumptions about investor behavior and assumptions about capital markets.

The capital market line represents:

What is beta and how can it be estimated?

A security's return can be decomposed into the following two parts:

The security market line (SML) is a graphical depiction of:

The capital asset pricing model assumes that the expected return of a security is determined by:

The portfolio, which consists of all assets, is called:

The multifactor CAPM is attractive because:

Compare and contrast the SML, CML and market model.

The CAPM has strong theoretical and empirical support.

In graphically depicting the model for security returns usually referred to as the market model, the slope of the line can be thought of as the:

The difference between the expected return in the market and the riskfree rate is called:

Capital market theory makes assumptions about:

The APT model postulates that a security's expected return is influenced by:

The higher the beta, the higher the expected return.

Beta measures how sensitive the security return is to changes in the market level.

The slope of the capital market line (CML) is also referred to as the market price of risk.

Which of the following economic factors have been identified to explain security returns according to the APT?

A statistical index of the sensitivity of an asset's price change to changes in the value of the overall market or of assets in general is the: