Question 1

As used in the market model,the symbol "ε" represents:

Accepted Answer

A) unsystematic risk. 
B) beta. 
C) systematic risk. 
D) a stock's response to systematic risk. 
E) the expected change in GNP. 
A) unsystematic risk. 
B) beta. 
C) systematic risk. 
D) a stock's response to systematic risk. 
E) the expected change in GNP.

Question 2

If an announcement by a firm causes the price of that firm's stock to suddenly change,that price change will most likely be driven by:

Accepted Answer

A) the expected part of the announcement. 
B) market inefficiency. 
C) the unexpected part of the announcement. 
D) systematic risk. 
E) expectations of a revised announcement in the near term. 
A) the expected part of the announcement. 
B) market inefficiency. 
C) the unexpected part of the announcement. 
D) systematic risk. 
E) expectations of a revised announcement in the near term.

Question 3

A growth-stock portfolio is probably best characterized as having a:

Accepted Answer

A) high PE ratio as compared to the overall market. 
B) lower risk premium than the overall market. 
C) low level of systematic risk and a high level of unsystematic risk. 
D) low PE ratio as compared to the overall market. 
E) a lower beta than the overall market. 
A) high PE ratio as compared to the overall market. 
B) lower risk premium than the overall market. 
C) low level of systematic risk and a high level of unsystematic risk. 
D) low PE ratio as compared to the overall market. 
E) a lower beta than the overall market.

Question 4

When using the empirical approach,rather than a risk-based model,to compute an expected rate of return on a security,the beta values are replaced with:

Accepted Answer

A) the ratio of the market rate of return to the risk-free rate. 
B) a singular value equal to the market-to-book value of the firm. 
C) the firm's various attributes. 
D) the ratio of the firm's historical average return to the risk-free rate. 
E) the average standard deviation of the security's historical returns. 
A) the ratio of the market rate of return to the risk-free rate. 
B) a singular value equal to the market-to-book value of the firm. 
C) the firm's various attributes. 
D) the ratio of the firm's historical average return to the risk-free rate. 
E) the average standard deviation of the security's historical returns.

Question 5

Estimating the rate of return for any portfolio lying on the security market line requires which of the following?

Accepted Answer

A) Market rate of return and the portfolio beta 
B) Market rate of return,market beta,and the risk-free rate 
C) Risk-free rate,factor beta,and the industry beta 
D) Factor beta and the market risk premium 
E) Portfolio beta,the risk-free rate,and the market risk premium 
A) Market rate of return and the portfolio beta 
B) Market rate of return,market beta,and the risk-free rate 
C) Risk-free rate,factor beta,and the industry beta 
D) Factor beta and the market risk premium 
E) Portfolio beta,the risk-free rate,and the market risk premium

Question 6

A factor,as used in APT,is a variable that:

Accepted Answer

A) represents a nondiversifiable risk. 
B) affects the returns of risky assets in an unsystematic fashion. 
C) correlates the returns of a risky asset with those of a risk-free asset. 
D) measures the response of a specific asset to a systematic risk. 
E) represents a firm-specific risk. 
A) represents a nondiversifiable risk. 
B) affects the returns of risky assets in an unsystematic fashion. 
C) correlates the returns of a risky asset with those of a risk-free asset. 
D) measures the response of a specific asset to a systematic risk. 
E) represents a firm-specific risk.

Question 7

Overton Markets stock has an expected return of 7.8 percent and betas of: βGNP = 1.06; βI = 1.01; and βEx = .52.This expectation is based on a three-factor model with expected values of: GNP growth of 2.6 percent; inflation of 3.1 percent; and export growth of 1.4 percent.However,actual growth in these factors turns out to be 3.1 percent,2.6 percent,and .2 percent,respectively.Calculate the stock's total return if the company unexpectedly announces that an important patent filing has been granted sooner than expected and will earn the company 5 percent more in return,(i.e.from 10 percent up to 15 percent).

Accepted Answer

A) 16.02 percent 
B) 12.20 percent 
C) 11.55 percent 
D) 10.90 percent 
E) 11.02 percent 
A) 16.02 percent 
B) 12.20 percent 
C) 11.55 percent 
D) 10.90 percent 
E) 11.02 percent

Question 8

The Fama-French three-factor model seems to support the notion that higher returns can best be earned over time on:

Accepted Answer

A) large,growth stocks. 
B) large,value stocks. 
C) small,value stocks. 
D) small,growth stocks. 
E) the overall stock market. 
A) large,growth stocks. 
B) large,value stocks. 
C) small,value stocks. 
D) small,growth stocks. 
E) the overall stock market.

Question 9

Assuming the single-factor model applies,the factor beta for the market portfolio is:

Accepted Answer

A) zero. 
B) one. 
C) the average of the risk-free beta and the beta for the highest risk security in the portfolio. 
D) impossible to calculate without collecting sample data. 
E) irrelevant to the model. 
A) zero. 
B) one. 
C) the average of the risk-free beta and the beta for the highest risk security in the portfolio. 
D) impossible to calculate without collecting sample data. 
E) irrelevant to the model.

Question 10

In the equation R = E(R)+ U,the three symbols,from left to right,stand for:

Accepted Answer

A) average return,expected return,and unexpected return. 
B) required return,expected return,and unbiased return. 
C) actual return,expected return,and unexpected return. 
D) required return,expected return,and unbiased risk. 
E) required return,expected return,and unsystematic risk. 
A) average return,expected return,and unexpected return. 
B) required return,expected return,and unbiased return. 
C) actual return,expected return,and unexpected return. 
D) required return,expected return,and unbiased risk. 
E) required return,expected return,and unsystematic risk.

Question 11

Parametric or empirical models rely:

Accepted Answer

A) on security betas explaining systematic factor relationships. 
B) on finding regularities and relations in past market data. 
C) on security returns always being located on the capital market line. 
D) solely on factors within the security's issuing firm's realm of control. 
E) primarily on financial market models and theories. 
A) on security betas explaining systematic factor relationships. 
B) on finding regularities and relations in past market data. 
C) on security returns always being located on the capital market line. 
D) solely on factors within the security's issuing firm's realm of control. 
E) primarily on financial market models and theories.

Question 12

If a large number of diverse securities are added to a portfolio comprised of three stocks,then the:

Accepted Answer

A) weighted average expected return goes to zero. 
B) weighted average of the factor betas goes to zero. 
C) weighted average of the unsystematic risk goes to zero. 
D) return of the portfolio must equal the market rate of return. 
E) return of the portfolio will equal the risk-free rate. 
A) weighted average expected return goes to zero. 
B) weighted average of the factor betas goes to zero. 
C) weighted average of the unsystematic risk goes to zero. 
D) return of the portfolio must equal the market rate of return. 
E) return of the portfolio will equal the risk-free rate.

Exam 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory

As used in the market model,the symbol "ε" represents:

If an announcement by a firm causes the price of that firm's stock to suddenly change,that price change will most likely be driven by:

A growth-stock portfolio is probably best characterized as having a:

When using the empirical approach,rather than a risk-based model,to compute an expected rate of return on a security,the beta values are replaced with:

Estimating the rate of return for any portfolio lying on the security market line requires which of the following?

A factor,as used in APT,is a variable that:

The Fama-French three-factor model seems to support the notion that higher returns can best be earned over time on:

Assuming the single-factor model applies,the factor beta for the market portfolio is:

In the equation R = E(R)+ U,the three symbols,from left to right,stand for:

Parametric or empirical models rely:

If a large number of diverse securities are added to a portfolio comprised of three stocks,then the:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

Filters