Consider the multifactor APT. There are two independent economic factors, F1 and F2. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios: \[\begin{array} { c c c c } \text { Portfolio } & \beta \text { on } \mathrm { F } _ { 1 } & \beta \text { on } \mathrm { F } _ { 2 } & \begin{array} { c } \text { Expected } \\ \text { Return } \end{array} \\ \text { A } & 1.0 & 2.0 & 19 \% \\ \text { B } & 2.0 & 0.0 & 12 \% \\ \hline \end{array}\] Assuming no arbitrage opportunities exist, the risk premium on the factor F1 portfolio should be

A) 3%. B) 4%. C) 5%. D) 6%. A) 3%. B) 4%. C) 5%. D) 6%.

Exam 10: Arbitrage Pricing Theory and Multifactor Models of Risk and Return

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Consider the one-factor APT. The variance of returns on the factor portfolio is 6%. The beta of a well-diversified portfolio on the factor is 1.1. The variance of returns on the well-diversified portfolio is approximately

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Question 61

Consider the single-factor APT. Stocks A and B have expected returns of 12% and 14%, respectively. The risk-free rate of return is 5%. Stock B has a beta of 1.2. If arbitrage opportunities are ruled out, stock A has a beta of

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Question 62

An investor will take as large a position as possible when an equilibrium-price relationship is violated. This is an example of

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Question 63

Consider the multifactor APT. There are two independent economic factors, F₁ and F₂. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios: Portfolio \beta on \beta on Expected Return A 1.0 2.0 19\% B 2.0 0.0 12\% Assuming no arbitrage opportunities exist, the risk premium on the factor F₁ portfolio should be

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Question 64

Suppose you are working with two factor portfolios, portfolio 1 and portfolio 2. The portfolios have expected returns of 15% and 6%, respectively. Based on this information, what would be the expected return on well-diversified portfolio A, if A has a beta of 0.80 on the first factor and 0.50 on the second factor? The risk-free rate is 3%.

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Question 65

In terms of the risk/return relationship in the APT,

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Question 66

Which of the following is false about the security market line (SML) derived from the APT?

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Question 67

The term "arbitrage" refers to

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Question 68

Which of the following factors might affect stock returns?

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Question 69

A professional who searches for mispriced securities in specific areas such as merger-target stocks, rather than one who seeks strict (risk-free) arbitrage opportunities is engaged in

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Question 70

Consider the one-factor APT. The variance of returns on the factor portfolio is 9%. The beta of a well-diversified portfolio on the factor is 1.25. The variance of returns on the well-diversified portfolio is approximately

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Question 71

A well-diversified portfolio is defined as

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Question 72

Showing 61 - 72 of 72

Consider the one-factor APT. The variance of returns on the factor portfolio is 6%. The beta of a well-diversified portfolio on the factor is 1.1. The variance of returns on the well-diversified portfolio is approximately

Consider the single-factor APT. Stocks A and B have expected returns of 12% and 14%, respectively. The risk-free rate of return is 5%. Stock B has a beta of 1.2. If arbitrage opportunities are ruled out, stock A has a beta of

An investor will take as large a position as possible when an equilibrium-price relationship is violated. This is an example of

In terms of the risk/return relationship in the APT,

Which of the following is false about the security market line (SML) derived from the APT?

The term "arbitrage" refers to

Which of the following factors might affect stock returns?

A professional who searches for mispriced securities in specific areas such as merger-target stocks, rather than one who seeks strict (risk-free) arbitrage opportunities is engaged in

Consider the one-factor APT. The variance of returns on the factor portfolio is 9%. The beta of a well-diversified portfolio on the factor is 1.25. The variance of returns on the well-diversified portfolio is approximately

A well-diversified portfolio is defined as

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