A) are based on both macro events and firm-specific events. B) are based on firm-specific events only. C) are usually positively correlated with each other. D) A and B. E) A and C. A) are based on both macro events and firm-specific events. B) are based on firm-specific events only. C) are usually positively correlated with each other. D) A and B. E) A and C.

Exam 8: Index Models

Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 40 stocks in order to construct a mean-variance efficient portfolio constrained by 40 investments.They will need to calculate ___ expected returns and _ variances of returns.

Free

(Multiple Choice)

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Question 1

Correct Answer:

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If a firm's beta was calculated as 1.3 in a regression equation,a commonly used adjustment technique would provide an adjusted beta of

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(Multiple Choice)

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Question 2

Correct Answer:

Verified

Discuss the security characteristic line (SCL).

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(Essay)

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Question 3

Correct Answer:

Verified

The security characteristic line (SCL) is the result of estimating the regression equation of the single-index model. The SCL is a plot of the typical excess returns on a security over the risk-free rate as a function of the excess return on the market. The slope of the SCL is the beta of the security, and the intercept (alpha) is the excess return on the security when the excess market return is zero.

Beta books typically rely on the __________ most recent monthly observations to calculate regression parameters.

(Multiple Choice)

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Question 4

Rosenberg and Guy found that ___________ helped to predict firms' betas.

(Multiple Choice)

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Question 5

The idea that there is a limit to the reduction of portfolio risk due to diversification is

(Multiple Choice)

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Question 6

Assume that stock market returns do follow a single-index structure.An investment fund analyzes 217 stocks in order to construct a mean-variance efficient portfolio constrained by 217 investments.They will need to calculate estimates of expected returns and estimates of sensitivity coefficients to the macroeconomic factor.

(Multiple Choice)

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Question 7

Security returns

(Multiple Choice)

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Question 8

Assume that stock market returns do follow a single-index structure.An investment fund analyzes 500 stocks in order to construct a mean-variance efficient portfolio constrained by 500 investments.They will need to calculate estimates of firm-specific variances and estimate/estimates for the variance of the macroeconomic factor.

(Multiple Choice)

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Question 9

As diversification increases,the firm-specific risk of a portfolio approaches ____________.

(Multiple Choice)

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Question 10

The beta of a stock has been estimated as 0.85 using regression analysis on a sample of historical returns.A commonly used adjustment technique would provide an adjusted beta of ___________.

(Multiple Choice)

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Question 11

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.

(Multiple Choice)

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Question 12

Suppose you forecast that the market index will earn a return of 15% in the coming year.Treasury bills are yielding 6%.The unadjusted β of Mobil stock is 1.30.A reasonable forecast of the return on Mobil stock for the coming year is _________ if you use a common method to derive adjusted betas.

(Multiple Choice)

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Question 13

Suppose the following equation best describes the evolution of β over time: Β_t= 0.4 + 0.6β_t-1 If a stock had a β of 0.9 last year,you would forecast the β to be _______ in the coming year.

(Multiple Choice)

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Question 14

A single-index model uses __________ as a proxy for the systematic risk factor.

(Multiple Choice)

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Question 15

If a firm's beta was calculated as 1.35 in a regression equation,a commonly used adjustment technique would provide an adjusted beta of.SSS

(Multiple Choice)

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Question 16

The index model has been estimated for stock A with the following results: R_A= 0.01 + 0.8R_M+ e_A Β_M= 0.20 β(e_A)= 0.10 The standard deviation of the return for stock A is __________.

(Multiple Choice)

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Question 17

According to the index model,covariances among security pairs are

(Multiple Choice)

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Question 18

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 1.30.A reasonable forecast of the return on Mobil stock for the coming year is _________ if you use a common method to derive adjusted betas.

(Multiple Choice)

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Question 19

Suppose you held a well-diversified portfolio with a very large number of securities,and that the single index model holds.If the β of your portfolio was 0.14 and β_Mwas 0.19,the β of the portfolio would be approximately ________.

(Multiple Choice)

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Question 20

Showing 1 - 20 of 86

Exam 8: Index Models

Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 40 stocks in order to construct a mean-variance efficient portfolio constrained by 40 investments.They will need to calculate _____________ expected returns and ___________ variances of returns.

If a firm's beta was calculated as 1.3 in a regression equation,a commonly used adjustment technique would provide an adjusted beta of

Discuss the security characteristic line (SCL).

Beta books typically rely on the __________ most recent monthly observations to calculate regression parameters.

Rosenberg and Guy found that ___________ helped to predict firms' betas.

The idea that there is a limit to the reduction of portfolio risk due to diversification is

Security returns

As diversification increases,the firm-specific risk of a portfolio approaches ____________.

The beta of a stock has been estimated as 0.85 using regression analysis on a sample of historical returns.A commonly used adjustment technique would provide an adjusted beta of ___________.

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 15% in the coming year.Treasury bills are yielding 6%.The unadjusted β of Mobil stock is 1.30.A reasonable forecast of the return on Mobil stock for the coming year is _________ if you use a common method to derive adjusted betas.

Suppose the following equation best describes the evolution of β over time: Βt= 0.4 + 0.6βt-1 If a stock had a β of 0.9 last year,you would forecast the β to be _______ in the coming year.

A single-index model uses __________ as a proxy for the systematic risk factor.

If a firm's beta was calculated as 1.35 in a regression equation,a commonly used adjustment technique would provide an adjusted beta of.SSS

The index model has been estimated for stock A with the following results: RA= 0.01 + 0.8RM+ eA ΒM= 0.20 β(eA)= 0.10 The standard deviation of the return for stock A is __________.

According to the index model,covariances among security pairs are

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 1.30.A reasonable forecast of the return on Mobil stock for the coming year is _________ if you use a common method to derive adjusted betas.

Suppose you held a well-diversified portfolio with a very large number of securities,and that the single index model holds.If the β of your portfolio was 0.14 and βMwas 0.19,the β of the portfolio would be approximately ________.

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

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

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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Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 40 stocks in order to construct a mean-variance efficient portfolio constrained by 40 investments.They will need to calculate ___ expected returns and _ variances of returns.

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 the following equation best describes the evolution of β over time: Β_t= 0.4 + 0.6β_t-1 If a stock had a β of 0.9 last year,you would forecast the β to be _______ in the coming year.

The index model has been estimated for stock A with the following results: R_A= 0.01 + 0.8R_M+ e_A Β_M= 0.20 β(e_A)= 0.10 The standard deviation of the return for stock A is __________.

Suppose you held a well-diversified portfolio with a very large number of securities,and that the single index model holds.If the β of your portfolio was 0.14 and β_Mwas 0.19,the β of the portfolio would be approximately ________.