Question 1

The CML indicates the required return for each portfolio risk level.

Accepted Answer

A) True 
 B)False

Question 2

Unlike the CAPM,the APT does not assume borrowing and lending at the risk-free rate.

Accepted Answer

A) True 
 B)False

Question 3

Select the INCORRECT statement regarding the CML.

Accepted Answer

A) The CML is an equilibrium relationship for efficient portfolios and individual securities. 
B) The CML represents the risk-return tradeoff in equilibrium for efficient portfolios. 
C) The intercept of the CML is the reward per unit of time available to investors for deferring consumption. 
D) Standard deviation is the measure of risk which determines a portfolio's equilibrium return. 
A) The CML is an equilibrium relationship for efficient portfolios and individual securities. 
B) The CML represents the risk-return tradeoff in equilibrium for efficient portfolios. 
C) The intercept of the CML is the reward per unit of time available to investors for deferring consumption. 
D) Standard deviation is the measure of risk which determines a portfolio's equilibrium return.

Question 4

What is the formula for the slope of the CML? What does it represent?

Accepted Answer

The slope is [E(R_M)- RF]/@#LAT-DLM&_M.It re

Question 5

__________,the CML can be downward sloping.

Accepted Answer

A) Ex post 
B) When investors are risk-lovers 
C) When the SML is upward sloping 
D) When the risk premium for the market is very high 
A) Ex post 
B) When investors are risk-lovers 
C) When the SML is upward sloping 
D) When the risk premium for the market is very high

Question 6

Under the separation theorem,all investors should:

Accepted Answer

A) hold the same portfolio of risky assets and therefore have the same risk/return combination. 
B) have different optimal portfolios. 
C) have the same portfolio of risky assets and achieve their own risk-return combination through borrowing and lending. 
D) hold the same portfolio of risky assets and the same expected return but at different levels of risk 
A) hold the same portfolio of risky assets and therefore have the same risk/return combination. 
B) have different optimal portfolios. 
C) have the same portfolio of risky assets and achieve their own risk-return combination through borrowing and lending. 
D) hold the same portfolio of risky assets and the same expected return but at different levels of risk

Question 7

Like CAPM,APT does not assume a single period investment horizon,no taxes,borrowing and lending at the RF rate,and investors selecting portfolios based on expected return and variance.

Accepted Answer

A) True 
 B)False

Question 8

The expected return for the market is 12 percent,with a standard deviation of 20 percent.The expected risk-free rate is 8 percent.Information is available for three mutual funds,all assumed to be efficient,as follows:
 $$\begin{array} { l c } 
\text { Mutual Funds } & \operatorname { SD } ( \% ) \
\hline  \text { Affiliated } & 15 \
\text { Omega } & 17 \
\text { Ivy } & 19
\end{array}$$ (a)Based on the CML,calculate the market price of risk.
(b)Calculate the expected return on each of these portfolios.

Accepted Answer

(a)Slope of CML = (12 - 8)/20

Question 9

How are securities chosen and in what proportions are they represented in the market portfolio M?

Accepted Answer

All assets are included in por

Question 10

Risk factors in the APT must possess all of the following the characteristics except:

Accepted Answer

A) Factors must be readily observable in risk/return space. 
B) Each factor must have a pervasive influence on stock returns 
C) The factors must influence expected return. 
D) Factors must be unpredictable. 
A) Factors must be readily observable in risk/return space. 
B) Each factor must have a pervasive influence on stock returns 
C) The factors must influence expected return. 
D) Factors must be unpredictable.

Question 11

What does it mean when the CAPM is called "robust?"

Accepted Answer

A) The CAPM requires no assumptions. 
B) Even if most of the assumptions of the CAPM are relaxed,most of the conclusions will still hold. 
C) The CAPM is based on realistic assumptions. 
D) No other model can represent stock returns better than the CAPM. 
A) The CAPM requires no assumptions. 
B) Even if most of the assumptions of the CAPM are relaxed,most of the conclusions will still hold. 
C) The CAPM is based on realistic assumptions. 
D) No other model can represent stock returns better than the CAPM.

Question 12

If markets are truly efficient and in equilibrium

Accepted Answer

A) all securities would lie on the SML. 
B) any security that plots below the SML would be considered undervalued. 
C) any security that lies above the SML would be considered overvalued. 
D) no security would lie on the SML.. 
A) all securities would lie on the SML. 
B) any security that plots below the SML would be considered undervalued. 
C) any security that lies above the SML would be considered overvalued. 
D) no security would lie on the SML..

Question 13

At a given point in time the SML dictates that a security with a beta of 1.10 should require a return of 18 percent.Analysts determine that a particular stock with an observed beta of 1.10 has an expected return of 20 percent.Outline the scenario that will bring the security's return into equilibrium.

Accepted Answer

Investors will recognize the s

Question 14

If a certain stock has a beta greater than 1.0,it means that

Accepted Answer

A) the stock's return is more volatile than that of the market portfolio. 
B) an investor can eliminate the risk by combining it with another stock that has a negative beta. 
C) an investor will earn a higher return on his stock than that on the market portfolio. 
D) the stock is less risky than the market portfolio. 
A) the stock's return is more volatile than that of the market portfolio. 
B) an investor can eliminate the risk by combining it with another stock that has a negative beta. 
C) an investor will earn a higher return on his stock than that on the market portfolio. 
D) the stock is less risky than the market portfolio.

Question 15

Under the CMT,the relevant risk to consider with any security is:

Accepted Answer

A) its correlation with other securities in the portfolio. 
B) its covariance with the market portfolio. 
C) its deviation from the portfolio required rate of return. 
D) its variance from the risk-free rate of return. 
A) its correlation with other securities in the portfolio. 
B) its covariance with the market portfolio. 
C) its deviation from the portfolio required rate of return. 
D) its variance from the risk-free rate of return.

Question 16

With the APT,risk is defined in terms of a stock's sensitivity to basic economic factors.

Accepted Answer

A) True 
 B)False

Question 17

An analyst determined that for the past two quarters the risk-free rate has exceeded the return on the market portfolio.Does this information disprove the CML?

Accepted Answer

No,it merely shows that actual

Question 18

A security that plots above the SML would be a good security to sell short.

Accepted Answer

A) True 
 B)False

Question 19

When markets are in equilibrium,the CML will be upward sloping

Accepted Answer

A) because it shows the optimum combination of risky securities. 
B) because the price of risk must always be positive. 
C) because it contains all securities weighted by their market values. 
D) because the CML indicates the required return for each portfolio risk level. 
A) because it shows the optimum combination of risky securities. 
B) because the price of risk must always be positive. 
C) because it contains all securities weighted by their market values. 
D) because the CML indicates the required return for each portfolio risk level.

Question 20

The _________ is a plot of __________.

Accepted Answer

A) CML ...individual stocks and efficient portfolios 
B) CML ...both efficient and inefficient portfolios,only 
C) SML ...individual securities and efficient portfolios 
D) SML ...individual securities,inefficient portfolios,and efficient portfolios. 
A) CML ...individual stocks and efficient portfolios 
B) CML ...both efficient and inefficient portfolios,only 
C) SML ...individual securities and efficient portfolios 
D) SML ...individual securities,inefficient portfolios,and efficient portfolios.

The CML indicates the required return for each portfolio risk level.

Unlike the CAPM,the APT does not assume borrowing and lending at the risk-free rate.

Select the INCORRECT statement regarding the CML.

What is the formula for the slope of the CML? What does it represent?

__________,the CML can be downward sloping.

Under the separation theorem,all investors should:

Like CAPM,APT does not assume a single period investment horizon,no taxes,borrowing and lending at the RF rate,and investors selecting portfolios based on expected return and variance.

How are securities chosen and in what proportions are they represented in the market portfolio M?

Risk factors in the APT must possess all of the following the characteristics except:

What does it mean when the CAPM is called "robust?"

If markets are truly efficient and in equilibrium

If a certain stock has a beta greater than 1.0,it means that

Under the CMT,the relevant risk to consider with any security is:

With the APT,risk is defined in terms of a stock's sensitivity to basic economic factors.

An analyst determined that for the past two quarters the risk-free rate has exceeded the return on the market portfolio.Does this information disprove the CML?

A security that plots above the SML would be a good security to sell short.

When markets are in equilibrium,the CML will be upward sloping

The _ is a plot of __.

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risks and Returns From Investing

Portfolio Theory

Portfolio Selection

Common Stock Valuation

Common Stocks: Analysis

Market Efficiency

Economy Market Analysis

Industry Analysis

Company Analysis

Technical Analysis

Bond Yields

Bonds: Analysis and Strategy

Options

Futures

Portfolio Management

Evaluation of Investment

Filters

Exam 9: Asset Pricing Models

The CML indicates the required return for each portfolio risk level.

Unlike the CAPM,the APT does not assume borrowing and lending at the risk-free rate.

Select the INCORRECT statement regarding the CML.

What is the formula for the slope of the CML? What does it represent?

__________,the CML can be downward sloping.

Under the separation theorem,all investors should:

Like CAPM,APT does not assume a single period investment horizon,no taxes,borrowing and lending at the RF rate,and investors selecting portfolios based on expected return and variance.

How are securities chosen and in what proportions are they represented in the market portfolio M?

Risk factors in the APT must possess all of the following the characteristics except:

What does it mean when the CAPM is called "robust?"

If markets are truly efficient and in equilibrium

If a certain stock has a beta greater than 1.0,it means that

Under the CMT,the relevant risk to consider with any security is:

With the APT,risk is defined in terms of a stock's sensitivity to basic economic factors.

An analyst determined that for the past two quarters the risk-free rate has exceeded the return on the market portfolio.Does this information disprove the CML?

A security that plots above the SML would be a good security to sell short.

When markets are in equilibrium,the CML will be upward sloping

The _________ is a plot of __________.

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risks and Returns From Investing

Portfolio Theory

Portfolio Selection

Common Stock Valuation

Common Stocks: Analysis

Market Efficiency

Economy Market Analysis

Industry Analysis

Company Analysis

Technical Analysis

Bond Yields

Bonds: Analysis and Strategy

Options

Futures

Portfolio Management

Evaluation of Investment

Filters

The _ is a plot of __.