Exam 8: Index Models

Assume that stock market returns do follow a single-index structure.An investment fund analyzes 200 stocks in order to construct a mean-variance efficient portfolio constrained by 200 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 41

If a firm's beta was calculated as 0.6 in a regression equation,a commonly used adjustment technique would provide an adjusted beta of

(Multiple Choice)

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Question 42

As diversification increases,the unique risk of a portfolio approaches ____________.

(Multiple Choice)

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Question 43

In their study about predicting beta coefficients,which of the following did Rosenberg and Guy find to be factors that influence beta? I.Industry group II.Variance of cash flow III.Dividend yield IV.Growth in earnings per share

(Multiple Choice)

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Question 44

As diversification increases,the total variance of a portfolio approaches ____________.

(Multiple Choice)

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Question 45

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 0.18 and β_Mwas 0.22,the β of the portfolio would be approximately ________.

(Multiple Choice)

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Question 46

Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 132 stocks in order to construct a mean-variance efficient portfolio constrained by 132 investments.They will need to calculate ____________ covariances.

(Multiple Choice)

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Question 47

In a factor model,the return on a stock in a particular period will be related to _________.

(Multiple Choice)

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Question 48

Assume that stock market returns do follow a single-index structure.An investment fund analyzes 60 stocks in order to construct a mean-variance efficient portfolio constrained by 60 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 49

Suppose the following equation best describes the evolution of β over time: Β_t= 0.25 + 0.75β_t-1 If a stock had a β of 0.6 last year,you would forecast the β to be _______ in the coming year.

(Multiple Choice)

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Question 50

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 ____________ covariances.

(Multiple Choice)

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Question 51

An analyst estimates the index model for a stock using regression analysis involving total returns.The estimated the intercept in the regression equation is 6% and the β is 0.5.The risk-free rate of return is 12%.The true β of the stock is ________.

(Multiple Choice)

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Question 52

If the index model is valid,_________ would be helpful in determining the covariance between assets K and L.

(Multiple Choice)

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Question 53

The intercept in the regression equations calculated by beta books is equal to

(Multiple Choice)

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Question 54

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 _______.

(Multiple Choice)

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Question 55

The single-index model

(Multiple Choice)

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Question 56

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 0.20 and β_Mwas 0.16,the β of the portfolio would be approximately ________.

(Multiple Choice)

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Question 57

If a firm's beta was calculated as 0.8 in a regression equation,a commonly used adjustment technique would provide an adjusted beta of

(Multiple Choice)

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Question 58

The Security Characteristic Line (SCL)

(Multiple Choice)

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Question 59

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

(Multiple Choice)

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Question 60

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Exam 8: Index Models

If a firm's beta was calculated as 0.6 in a regression equation,a commonly used adjustment technique would provide an adjusted beta of

As diversification increases,the unique risk of a portfolio approaches ____________.

In their study about predicting beta coefficients,which of the following did Rosenberg and Guy find to be factors that influence beta? I.Industry group II.Variance of cash flow III.Dividend yield IV.Growth in earnings per share

As diversification increases,the total variance of a portfolio approaches ____________.

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 0.18 and βMwas 0.22,the β of the portfolio would be approximately ________.

Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 132 stocks in order to construct a mean-variance efficient portfolio constrained by 132 investments.They will need to calculate ____________ covariances.

In a factor model,the return on a stock in a particular period will be related to _________.

Suppose the following equation best describes the evolution of β over time: Βt= 0.25 + 0.75βt-1 If a stock had a β of 0.6 last year,you would forecast the β to be _______ in the coming year.

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 ____________ covariances.

An analyst estimates the index model for a stock using regression analysis involving total returns.The estimated the intercept in the regression equation is 6% and the β is 0.5.The risk-free rate of return is 12%.The true β of the stock is ________.

If the index model is valid,_________ would be helpful in determining the covariance between assets K and L.

The intercept in the regression equations calculated by beta books is equal to

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 _______.

The single-index model

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 0.20 and βMwas 0.16,the β of the portfolio would be approximately ________.

If a firm's beta was calculated as 0.8 in a regression equation,a commonly used adjustment technique would provide an adjusted beta of

The Security Characteristic Line (SCL)

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

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

Filters

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 0.18 and β_Mwas 0.22,the β of the portfolio would be approximately ________.

Suppose the following equation best describes the evolution of β over time: Β_t= 0.25 + 0.75β_t-1 If a stock had a β of 0.6 last year,you would forecast the β to be _______ in the coming year.

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 0.20 and β_Mwas 0.16,the β of the portfolio would be approximately ________.