Exam 12: An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Suppose the Carz Corporation's common stock has a beta of 0.9. If the risk-free rate is 3.5% and the expected market return is 9%,the expected return for JumpStart's common stock is:

The Fama-French three factor model predicts the expected return on a portfolio increases:

Which of the following statements is/are true?

In a portfolio of risky assets,the response to a factor,F_i,can be determined by:

Suppose the MiniCD Corporation's common stock has a return of 12%. Assume the risk-free rate is 4%,the expected market return is 9%,and no unsystematic influence affected Mini's return. The beta for MiniCD is:

If company A,a medical research company,makes a new product discovery and their stock rises 5%,this will have:

The unexpected return on a security,U,is made up of:

Three factors likely to occur in the APT model are:

In normal market conditions if a security has a negative beta:

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 turns out to be 1%,-2%,and 2%. The factor betas are given by β_EX = 1.8,β_I = 0.7,and β_IP = 1.0. What would the stock's total return be if the actual growth in each of the factors was equal to growth expected? Assume no unexpected news on the patent.

Assume that the single factor APT model applies and a portfolio exists such that 2/3 of the funds are invested in Security Q and the rest in the risk-free asset. Security Q has a beta of 1.5. The portfolio has a beta of:

To estimate the cost of equity capital for a firm using the CAPM,it is necessary to have:

A criticism of the CAPM is that it:

The acronym CAPM stands for:

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 turns out to be 1%,-2%,and 2%. The factor betas are given by β_EX = 1.8,β_I = 0.7,and β_IP = 1.0. Calculate the stock's total return if the company announces that an important patent filing has been granted sooner than expected and will earn the company 5% more in return.

In the equation R = + U,the three symbols stand for:

A company owning gold mines will probably have a _____ inflation beta because an ___ increase in inflation is usually associated with an increase in gold prices.

A security that has a beta of zero will have an expected return of:

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?

The acronym APT stands for: