Exam 8: Index Models

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds.If the σ of your portfolio was 0.18 and σ_M was 0.22, the β of the portfolio would be approximately

The beta of Exxon stock has been estimated as 1.6 using regression analysis on a sample of historical returns.A commonly used adjustment technique would provide an adjusted beta of

One "cost" of the single-index model is that it

Assume that stock market returns do follow a single-index structure.An investment fund analyzes 125 stocks in order to construct a mean-variance efficient portfolio constrained by 125 investments.They will need to calculate ________ estimates of expected returns and ________ estimates of sensitivity coefficients to the macroeconomic factor.

Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 125 stocks in order to construct a mean-variance efficient portfolio constrained by 125 investments.They will need to calculate _____________ expected returns and ___________ variances of returns.

Suppose you forecast that the market index will earn a return of 12% in the coming year.Treasury bills are yielding 4%.The unadjusted β of Mobil stock is 1.50.A reasonable forecast of the return on Mobil stock for the coming year is _________ if you use a common method to derive adjusted betas.

Consider the single-index model.The alpha of a stock is 0%.The return on the market index is 10%.The risk-free rate of return is 3%.The stock earns a return that exceeds the risk-free rate by 11%, and there are no firm-specific events affecting the stock performance.The β of the stock is