Question 1

The security market line (SML)

Accepted Answer

A) can be portrayed graphically as the expected return-beta relationship. 
B) can be portrayed graphically as the expected return-standard deviation of market returns relationship. 
C) provides a benchmark for evaluation of investment performance. 
D) A and C. 
E) B and C. 
A) can be portrayed graphically as the expected return-beta relationship. 
B) can be portrayed graphically as the expected return-standard deviation of market returns relationship. 
C) provides a benchmark for evaluation of investment performance. 
D) A and C. 
E) B and C.

Question 2

According to the Capital Asset Pricing Model (CAPM),the expected rate of return on any security is equal to

Accepted Answer

A) Rf+ β [E(RM)]. 
B) Rf+ β [E(RM) - Rf]. 
C) β [E(RM) - Rf]. 
D) E(RM) + Rf. 
E) none of the above. 
A) Rf+ β [E(RM)]. 
B) Rf+ β [E(RM) - Rf]. 
C) β [E(RM) - Rf]. 
D) E(RM) + Rf. 
E) none of the above.

Question 3

You invest $600 in a security with a beta of 1.2 and $400 in another security with a beta of 0.90.The beta of the resulting portfolio is

Accepted Answer

A) 1.40 
B) 1.00 
C) 0.36 
D) 1.08 
E) 0.80 
A) 1.40 
B) 1.00 
C) 0.36 
D) 1.08 
E) 0.80

Question 4

You invest 55% of your money in security A with a beta of 1.4 and the rest of your money in security B with a beta of 0.9.The beta of the resulting portfolio is

Accepted Answer

A) 1.466 
B) 1.157 
C) 0.968 
D) 1.082 
E) 1.175 
A) 1.466 
B) 1.157 
C) 0.968 
D) 1.082 
E) 1.175

Question 5

The capital asset pricing model assumes

Accepted Answer

A) all investors are fully informed. 
B) all investors are rational. 
C) all investors are mean-variance optimizers. 
D) taxes are an important consideration. 
E) A,B and C are all true. 
A) all investors are fully informed. 
B) all investors are rational. 
C) all investors are mean-variance optimizers. 
D) taxes are an important consideration. 
E) A,B and C are all true.

Question 6

You invest 50% of your money in security A with a beta of 1.6 and the rest of your money in security B with a beta of 0.7.The beta of the resulting portfolio is

Accepted Answer

A) 1.40 
B) 1.15 
C) 0.36 
D) 1.08 
E) 0.80 
A) 1.40 
B) 1.15 
C) 0.36 
D) 1.08 
E) 0.80

Question 7

The expected return - beta relationship of the CAPM is graphically represented by

Accepted Answer

A) the security market line. 
B) the capital market line. 
C) the capital allocation line. 
D) the efficient frontier with a risk-free asset. 
E) the efficient frontier without a risk-free asset. 
A) the security market line. 
B) the capital market line. 
C) the capital allocation line. 
D) the efficient frontier with a risk-free asset. 
E) the efficient frontier without a risk-free asset.

Question 8

The capital asset pricing model assumes

Accepted Answer

A) all investors are price takers. 
B) all investors have the same holding period. 
C) investors pay taxes on capital gains. 
D) both A and B are true. 
E) A,B and C are all true. 
A) all investors are price takers. 
B) all investors have the same holding period. 
C) investors pay taxes on capital gains. 
D) both A and B are true. 
E) A,B and C are all true.

Question 9

According to the Capital Asset Pricing Model (CAPM),which one of the following statements is false?

Accepted Answer

A) The expected rate of return on a security increases in direct proportion to a decrease in the risk-free rate. 
B) The expected rate of return on a security increases as its beta increases. 
C) A fairly priced security has an alpha of zero. 
D) In equilibrium, all securities lie on the security market line. 
E) All of the above statements are true. 
A) The expected rate of return on a security increases in direct proportion to a decrease in the risk-free rate. 
B) The expected rate of return on a security increases as its beta increases. 
C) A fairly priced security has an alpha of zero. 
D) In equilibrium, all securities lie on the security market line. 
E) All of the above statements are true.

Question 10

Which statement is true regarding the Capital Market Line (CML)?

Accepted Answer

A) The CML is the line from the risk-free rate through the market portfolio. 
B) The CML is the best attainable capital allocation line. 
C) The CML is also called the security market line. 
D) The CML always has a positive slope. 
E) A,B,and D are true. 
A) The CML is the line from the risk-free rate through the market portfolio. 
B) The CML is the best attainable capital allocation line. 
C) The CML is also called the security market line. 
D) The CML always has a positive slope. 
E) A,B,and D are true.

Question 11

One of the assumptions of the CAPM is that investors exhibit myopic behavior.What does this mean?

Accepted Answer

A) They plan for one identical holding period. 
B) They are price-takers who can't affect market prices through their trades. 
C) They are mean-variance optimizers. 
D) They have the same economic view of the world. 
E) They pay no taxes or transactions costs. 
A) They plan for one identical holding period. 
B) They are price-takers who can't affect market prices through their trades. 
C) They are mean-variance optimizers. 
D) They have the same economic view of the world. 
E) They pay no taxes or transactions costs.

Question 12

Assume that a security is fairly priced and has an expected rate of return of 0.17.The market expected rate of return is 0.11 and the risk-free rate is 0.04.The beta of the stock is ___.

Accepted Answer

A) 1.25. 
B) 1.86. 
C) 1. 
D) 0.95. 
E) none of the above. 
A) 1.25. 
B) 1.86. 
C) 1. 
D) 0.95. 
E) none of the above.

Question 13

The risk-free rate is 7 percent.The expected market rate of return is 15 percent.If you expect a stock with a beta of 1.3 to offer a rate of return of 12 percent,you should

Accepted Answer

A) buy the stock because it is overpriced. 
B) sell short the stock because it is overpriced. 
C) sell the stock short because it is underpriced. 
D) buy the stock because it is underpriced. 
E) none of the above,as the stock is fairly priced. 
A) buy the stock because it is overpriced. 
B) sell short the stock because it is overpriced. 
C) sell the stock short because it is underpriced. 
D) buy the stock because it is underpriced. 
E) none of the above,as the stock is fairly priced.

Question 14

Security A has an expected rate of return of 0.10 and a beta of 1.3.The market expected rate of return is 0.10 and the risk-free rate is 0.04.The alpha of the stock is

Accepted Answer

A) 1.7%. 
B) -1.8%. 
C) 8.3%. 
D) 5.5%. 
E) none of the above. 
A) 1.7%. 
B) -1.8%. 
C) 8.3%. 
D) 5.5%. 
E) none of the above.

Question 15

List and discuss two of the assumptions of the CAPM.

Accepted Answer

Assumptions are 1) there are many invest

Question 16

The capital asset pricing model assumes

Accepted Answer

A) all investors are price takers. 
B) all investors have the same holding period. 
C) investors have homogeneous expectations. 
D) both A and B are true. 
E) A,B and C are all true. 
A) all investors are price takers. 
B) all investors have the same holding period. 
C) investors have homogeneous expectations. 
D) both A and B are true. 
E) A,B and C are all true.

Question 17

You invest $600 in a security with a beta of 1.2 and $400 in another security with a beta of 0.90.The beta of the resulting portfolio is

Accepted Answer

A) 1.40 
B) 1.00 
C) 0.36 
D) 1.08 
E) 0.80 
A) 1.40 
B) 1.00 
C) 0.36 
D) 1.08 
E) 0.80

Question 18

Which of the following statements about the mutual fund theorem is true?
I.It is similar to the separation property.
II.It implies that a passive investment strategy can be efficient.
III.It implies that efficient portfolios can be formed only through active strategies.
IV.It means that professional managers have superior security selection strategies.

Accepted Answer

A) I and IV 
B) I, II, and IV 
C) I and II 
D) III and IV 
E) II and IV 
A) I and IV 
B) I, II, and IV 
C) I and II 
D) III and IV 
E) II and IV

Question 19

Your opinion is that Boeing has an expected rate of return of 0.112.It has a beta of 0.92.The risk-free rate is 0.04 and the market expected rate of return is 0.10.According to the Capital Asset Pricing Model,this security is

Accepted Answer

A) underpriced. 
B) overpriced. 
C) fairly priced. 
D) cannot be determined from data provided. 
E) none of the above. 
A) underpriced. 
B) overpriced. 
C) fairly priced. 
D) cannot be determined from data provided. 
E) none of the above.

Question 20

According to the Capital Asset Pricing Model (CAPM),

Accepted Answer

A) a security with a positive alpha is considered overpriced. 
B) a security with a zero alpha is considered to be a good buy. 
C) a security with a negative alpha is considered to be a good buy. 
D) a security with a positive alpha is considered to be underpriced. 
E) none of the above. 
A) a security with a positive alpha is considered overpriced. 
B) a security with a zero alpha is considered to be a good buy. 
C) a security with a negative alpha is considered to be a good buy. 
D) a security with a positive alpha is considered to be underpriced. 
E) none of the above.

Exam 12: Behavioral Finance and Technical Analysis

The security market line (SML)

According to the Capital Asset Pricing Model (CAPM),the expected rate of return on any security is equal to

You invest $600 in a security with a beta of 1.2 and $400 in another security with a beta of 0.90.The beta of the resulting portfolio is

You invest 55% of your money in security A with a beta of 1.4 and the rest of your money in security B with a beta of 0.9.The beta of the resulting portfolio is

The capital asset pricing model assumes

You invest 50% of your money in security A with a beta of 1.6 and the rest of your money in security B with a beta of 0.7.The beta of the resulting portfolio is

The expected return - beta relationship of the CAPM is graphically represented by

The capital asset pricing model assumes

According to the Capital Asset Pricing Model (CAPM),which one of the following statements is false?

Which statement is true regarding the Capital Market Line (CML)?

One of the assumptions of the CAPM is that investors exhibit myopic behavior.What does this mean?

Assume that a security is fairly priced and has an expected rate of return of 0.17.The market expected rate of return is 0.11 and the risk-free rate is 0.04.The beta of the stock is ___.

The risk-free rate is 7 percent.The expected market rate of return is 15 percent.If you expect a stock with a beta of 1.3 to offer a rate of return of 12 percent,you should

Security A has an expected rate of return of 0.10 and a beta of 1.3.The market expected rate of return is 0.10 and the risk-free rate is 0.04.The alpha of the stock is

List and discuss two of the assumptions of the CAPM.

The capital asset pricing model assumes

You invest $600 in a security with a beta of 1.2 and $400 in another security with a beta of 0.90.The beta of the resulting portfolio is

Your opinion is that Boeing has an expected rate of return of 0.112.It has a beta of 0.92.The risk-free rate is 0.04 and the market expected rate of return is 0.10.According to the Capital Asset Pricing Model,this security is

According to the Capital Asset Pricing Model (CAPM),

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

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