Question 1

The three factors that appear to be most relevant when testing the APT relate to:

Accepted Answer

A)  unexpected interest rates, inflation and economic growth 
B)  expected interest rates, inflation and economic growth 
C)  expected and unexpected interest rates and economic growth 
D)  expected and unexpected interest rates and inflation 
A)  unexpected interest rates, inflation and economic growth 
B)  expected interest rates, inflation and economic growth 
C)  expected and unexpected interest rates and economic growth 
D)  expected and unexpected interest rates and inflation

Question 2

Which of the following is an issue associated with the calculation of consumption for practical application in the CCAPM?

Accepted Answer

A)  Goods are consumed immediately 
B)  Consumption figures are constant and relied on fro decisions 
C)  Expenditure is reported rather than consumption 
D)  all of these choices 
A)  Goods are consumed immediately 
B)  Consumption figures are constant and relied on fro decisions 
C)  Expenditure is reported rather than consumption 
D)  all of these choices

Question 3

$\begin{array}{|l|l|l|l|}
\hline \text { Factor } & {\left[\mathrm{E}\left(\mathrm{R}_{\mathrm{M}}\right)-\mathrm{R}_{\mathrm{F}}\right)} & \mathrm{SMB} & \mathrm{HML} \
\hline \text { Sensitivity } & \mathrm{b}_{\mathrm{i}}=1.75 & \mathrm{~s}_{\mathrm{i}}=-0.80 & \mathrm{~h}_{\mathrm{i}}=0.60 \
\hline \text { Risk premium } & 18.5 \% & 5.25 \% & 0.50 \% \
\hline
\end{array}$
-Suppose the above asset is observed in the market trading with an expected return of 28%.What strategy would you suggest to profit from this situation,assuming the Fama-French model was the correct pricing model and the risk-free rate was 8%?

Accepted Answer

A)  buy the asset 
B)  short-sell the asset 
C)  buy the risk-free asset 
D)  sell the market portfolio 
A)  buy the asset 
B)  short-sell the asset 
C)  buy the risk-free asset 
D)  sell the market portfolio

Question 4

The arbitrage pricing theory was developed by _________.

Accepted Answer

A) Henry Markowitz 
B) Stephen Ross 
C) William Sharpe 
D) Eugene Fama 
A) Henry Markowitz 
B) Stephen Ross 
C) William Sharpe 
D) Eugene Fama

Question 5

Using Solnik's (1974)ICAPM,what is the expected return on an Australian security with a world market beta of 1.2 if the Australian risk-free rate is 7%,the world risk-free rate is 3.5% and the expected return on the world market portfolio is 22%?

Accepted Answer

A) $ 23.0\% $ 
B)  $ 25.2 \% $ 
C)  $ 25.7 \% $ 
D)  $ 29,20\% $ 
A) $ 23.0\% $ 
B)  $ 25.2 \% $ 
C)  $ 25.7 \% $ 
D)  $ 29,20\% $

Question 6

If the ICAPM beta is 0.8,and the world market return and risk-free rate are 12% and 5% respectively,then the expected return predicted by the ICAPM is:

Accepted Answer

A)  $ 6.0 \% $ 
B)  $ 8.8 \% $ 
C)  $10.6 \% $ 
D)  $ 12.4 \% $ 
A)  $ 6.0 \% $ 
B)  $ 8.8 \% $ 
C)  $10.6 \% $ 
D)  $ 12.4 \% $

Question 7

One of the main problems with the arbitrage pricing theory is __________.

Accepted Answer

A) its use of several factors instead of a single market index to explain the risk-return relationship 
B) the introduction of nonsystematic risk as a key factor in the risk-return relationship 
C) that the APT requires an even larger number of unrealistic assumptions than does the CAPM 
D) the model fails to identify the key macroeconomic variables in the risk-return relationship 
A) its use of several factors instead of a single market index to explain the risk-return relationship 
B) the introduction of nonsystematic risk as a key factor in the risk-return relationship 
C) that the APT requires an even larger number of unrealistic assumptions than does the CAPM 
D) the model fails to identify the key macroeconomic variables in the risk-return relationship

Question 8

$\begin{array}{|l|l|l|l|}
\hline \text { Factor } & {\left[\mathrm{E}\left(\mathrm{R}_{\mathrm{M}}\right)-\mathrm{R}_{\mathrm{F}}\right)} & \mathrm{SMB} & \mathrm{HML} \
\hline \text { Sensitivity } & \mathrm{b}_{\mathrm{i}}=0.60 & \mathrm{~s}_{\mathrm{i}}=-0.44 & \mathrm{~h}_{\mathrm{i}}=0.28 \
\hline \text { Risk premium } & 12.7 \% & -2.17 \% & 3.25 \% \
\hline
\end{array}$
-Consider the single factor APT.Portfolio A has a beta of 0.2 and an expected return of 13%.Portfolio B has a beta of 0.4 and an expected return of 15%.The risk-free rate of return is 10%.If you wanted to take advantage of an arbitrage opportunity,you should take a short position in portfolio __________ and a long position in portfolio _________.

Accepted Answer

A) A;A 
B) A;B 
C) B;A 
D) B;B 
A) A;A 
B) A;B 
C) B;A 
D) B;B

Question 9

$\begin{array}{|l|l|l|l|}
\hline \text { Factor } & {\left[\mathrm{E}\left(\mathrm{R}_{\mathrm{M}}\right)-\mathrm{R}_{\mathrm{F}}\right)} & \mathrm{SMB} & \mathrm{HML} \
\hline \text { Sensitivity } & \mathrm{b}_{\mathrm{i}}=0.60 & \mathrm{~s}_{\mathrm{i}}=-0.44 & \mathrm{~h}_{\mathrm{i}}=0.28 \
\hline \text { Risk premium } & 12.7 \% & -2.17 \% & 3.25 \% \
\hline
\end{array}$
-An asset has the above sensitivity to the market portfolio and the risk-free rate is 6%.If an investor uses the CAPM model,but the Fama-French model is the correct model,by how much is the asset's expected return differ?

Accepted Answer

A)  $ 1.2 \% $ 
B)  $ 0.9 \% $ 
C)  $ 3.1 \% $ 
D)  $ 4.5 \% $ 
A)  $ 1.2 \% $ 
B)  $ 0.9 \% $ 
C)  $ 3.1 \% $ 
D)  $ 4.5 \% $

Question 10

The international capital asset pricing model (ICAPM)assumes:

Accepted Answer

A)  no investment restrictions 
B)  a completely integrated global financial market 
C)  a completely segmented global financial market 
D)  a completely integrated global financial market with no investment restrictions 
A)  no investment restrictions 
B)  a completely integrated global financial market 
C)  a completely segmented global financial market 
D)  a completely integrated global financial market with no investment restrictions

Question 11

$\begin{array}{|l|l|l|l|}
\hline \text { Factor } & {\left[\mathrm{E}\left(\mathrm{R}_{\mathrm{M}}\right)-\mathrm{R}_{\mathrm{F}}\right)} & \mathrm{SMB} & \mathrm{HML} \
\hline \text { Sensitivity } & \mathrm{b}_{\mathrm{i}}=0.60 & \mathrm{~s}_{\mathrm{i}}=-0.44 & \mathrm{~h}_{\mathrm{i}}=0.28 \
\hline \text { Risk premium } & 12.7 \% & -2.17 \% & 3.25 \% \
\hline
\end{array}$
-Assume the Fama-French model is the correct model to price assets.If an asset has the above sensitivities and the risk-free rate is 5%,what is the asset's expected return?

Accepted Answer

A)  $ 16.1 \% $ 
B)  $ 15.2 \% $ 
C)  $ 14.5 \% $ 
D)  $ 20.5 \% $ 
A)  $ 16.1 \% $ 
B)  $ 15.2 \% $ 
C)  $ 14.5 \% $ 
D)  $ 20.5 \% $

Question 12

According to the CCAPM,if the expected return on the market return is 7% and the risk-free rate is 5%,the expected return on a portfolio with a consumption beta of 1.5 is 3.1%.

Accepted Answer

A) True 
 B)False

Question 13

Calculate the consumption beta for an asset with a standard deviation of 10%,where the variance of consumption growth is 10% and the covariance between the growth rate in consumption and the asset is 0.015.

Accepted Answer

A)  $ 0.15 $ 
B)  $ 0.50 $ 
C)  $ 0.75 $ 
D)  $ 1.50 $ 
A)  $ 0.15 $ 
B)  $ 0.50 $ 
C)  $ 0.75 $ 
D)  $ 1.50 $

Question 14

The most significant conceptual difference between the arbitrage pricing theory (APT)and the capital asset pricing model (CAPM)is that the CAPM _____________.

Accepted Answer

A) places less emphasis on market risk 
B) recognizes multiple unsystematic risk factors 
C) recognizes only one systematic risk factor 
D) recognizes multiple systematic risk factors 
A) places less emphasis on market risk 
B) recognizes multiple unsystematic risk factors 
C) recognizes only one systematic risk factor 
D) recognizes multiple systematic risk factors

Question 15

A major difference between the application of the ICAPM compared with the domestic CAPM is:

Accepted Answer

A)  estimation of beta 
B)  no uniform risk-free rate 
C)  identification of market portfolio
D all of the above 
A)  estimation of beta 
B)  no uniform risk-free rate 
C)  identification of market portfolio
D all of the above

Question 16

Which of the following is NOT a risk premium incorporated in the Fama and French (1992)three-factor model of expected returns?

Accepted Answer

A)  consumption premium 
B)  market premium 
C)  size premium 
D)  growth vs. value premium 
A)  consumption premium 
B)  market premium 
C)  size premium 
D)  growth vs. value premium

Question 17

The ICAPM has been extended to a two-factor version by Adler and Dumas (1983)that incorporates what additional type of risk?

Accepted Answer

A)  oil price risk 
B)  exchange rate risk 
C)  consumption risk 
D)  inflation risk 
A)  oil price risk 
B)  exchange rate risk 
C)  consumption risk 
D)  inflation risk

Question 18

The APT of Ross requires the assumption of quadratic utility.

Accepted Answer

A) True 
 B)False

Question 19

Calculate the consumption beta for an asset with a variance of 10%,where the variance of consumption growth is 15% and the covariance between the growth rate in consumption and the asset is 20%.

Accepted Answer

A)  $ 0.15 $ 
B)  $ 1.00 $ 
C)  $ 1.25 $ 
D)  $ 1.33 $ 
A)  $ 0.15 $ 
B)  $ 1.00 $ 
C)  $ 1.25 $ 
D)  $ 1.33 $

Question 20

An asset in the Australian market has a consumption beta of 0.5.If the variance of the asset is 0.024 and the variance of the growth rate in consumption is 0.035,what is the asset's covariance with the growth rate in consumption?

Accepted Answer

A)  $ 0.0010 $ 
B)  $ 0.0120 $ 
C)  $ 0.0175 $ 
D)  $ 2.0830 $ 
A)  $ 0.0010 $ 
B)  $ 0.0120 $ 
C)  $ 0.0175 $ 
D)  $ 2.0830 $

The three factors that appear to be most relevant when testing the APT relate to:

Which of the following is an issue associated with the calculation of consumption for practical application in the CCAPM?

The arbitrage pricing theory was developed by _________.

Using Solnik's (1974)ICAPM,what is the expected return on an Australian security with a world market beta of 1.2 if the Australian risk-free rate is 7%,the world risk-free rate is 3.5% and the expected return on the world market portfolio is 22%?

If the ICAPM beta is 0.8,and the world market return and risk-free rate are 12% and 5% respectively,then the expected return predicted by the ICAPM is:

One of the main problems with the arbitrage pricing theory is __________.

Factor - Sensitivity =0.60 =-0.44 =0.28 Risk premium 12.7\% -2.17\% 3.25\% -An asset has the above sensitivity to the market portfolio and the risk-free rate is 6%.If an investor uses the CAPM model,but the Fama-French model is the correct model,by how much is the asset's expected return differ?

The international capital asset pricing model (ICAPM)assumes:

Factor - Sensitivity =0.60 =-0.44 =0.28 Risk premium 12.7\% -2.17\% 3.25\% -Assume the Fama-French model is the correct model to price assets.If an asset has the above sensitivities and the risk-free rate is 5%,what is the asset's expected return?

According to the CCAPM,if the expected return on the market return is 7% and the risk-free rate is 5%,the expected return on a portfolio with a consumption beta of 1.5 is 3.1%.

Calculate the consumption beta for an asset with a standard deviation of 10%,where the variance of consumption growth is 10% and the covariance between the growth rate in consumption and the asset is 0.015.

The most significant conceptual difference between the arbitrage pricing theory (APT)and the capital asset pricing model (CAPM)is that the CAPM _____________.

A major difference between the application of the ICAPM compared with the domestic CAPM is:

Which of the following is NOT a risk premium incorporated in the Fama and French (1992)three-factor model of expected returns?

The ICAPM has been extended to a two-factor version by Adler and Dumas (1983)that incorporates what additional type of risk?

The APT of Ross requires the assumption of quadratic utility.

Calculate the consumption beta for an asset with a variance of 10%,where the variance of consumption growth is 15% and the covariance between the growth rate in consumption and the asset is 20%.

An asset in the Australian market has a consumption beta of 0.5.If the variance of the asset is 0.024 and the variance of the growth rate in consumption is 0.035,what is the asset's covariance with the growth rate in consumption?

The Investment Decision

Australian Financial Markets

The International Investment Environment

Financial Management: Derivative Instruments and Information Sources

Money Market Securities

Bonds

Investor Preferences and Portfolio Concepts

Risky Asset Pricing Models and the Capm

Concepts and Applications of Market Efficiency

Equity Valuation Models

Macro- and Industry Analysis of Share Markets

Qualitative Stock Selection

Quantitative Company Analysis

Futures and Forward Contracts

Option Contracts

Advanced Issues in Options

Alternative Investments

Portfolio Management

Performance Evaluation of Managed Funds

Filters

Exam 9: Alternative Risky Asset Pricing Models

The three factors that appear to be most relevant when testing the APT relate to:

Which of the following is an issue associated with the calculation of consumption for practical application in the CCAPM?

The arbitrage pricing theory was developed by _________.

Using Solnik's (1974)ICAPM,what is the expected return on an Australian security with a world market beta of 1.2 if the Australian risk-free rate is 7%,the world risk-free rate is 3.5% and the expected return on the world market portfolio is 22%?

If the ICAPM beta is 0.8,and the world market return and risk-free rate are 12% and 5% respectively,then the expected return predicted by the ICAPM is:

One of the main problems with the arbitrage pricing theory is __________.

Factor - Sensitivity =0.60 =-0.44 =0.28 Risk premium 12.7\% -2.17\% 3.25\% -An asset has the above sensitivity to the market portfolio and the risk-free rate is 6%.If an investor uses the CAPM model,but the Fama-French model is the correct model,by how much is the asset's expected return differ?

The international capital asset pricing model (ICAPM)assumes:

Factor - Sensitivity =0.60 =-0.44 =0.28 Risk premium 12.7\% -2.17\% 3.25\% -Assume the Fama-French model is the correct model to price assets.If an asset has the above sensitivities and the risk-free rate is 5%,what is the asset's expected return?

According to the CCAPM,if the expected return on the market return is 7% and the risk-free rate is 5%,the expected return on a portfolio with a consumption beta of 1.5 is 3.1%.

Calculate the consumption beta for an asset with a standard deviation of 10%,where the variance of consumption growth is 10% and the covariance between the growth rate in consumption and the asset is 0.015.

The most significant conceptual difference between the arbitrage pricing theory (APT)and the capital asset pricing model (CAPM)is that the CAPM _____________.

A major difference between the application of the ICAPM compared with the domestic CAPM is:

Which of the following is NOT a risk premium incorporated in the Fama and French (1992)three-factor model of expected returns?

The ICAPM has been extended to a two-factor version by Adler and Dumas (1983)that incorporates what additional type of risk?

The APT of Ross requires the assumption of quadratic utility.

Calculate the consumption beta for an asset with a variance of 10%,where the variance of consumption growth is 15% and the covariance between the growth rate in consumption and the asset is 20%.

An asset in the Australian market has a consumption beta of 0.5.If the variance of the asset is 0.024 and the variance of the growth rate in consumption is 0.035,what is the asset's covariance with the growth rate in consumption?

The Investment Decision

Australian Financial Markets

The International Investment Environment

Financial Management: Derivative Instruments and Information Sources

Money Market Securities

Bonds

Investor Preferences and Portfolio Concepts

Risky Asset Pricing Models and the Capm

Concepts and Applications of Market Efficiency

Equity Valuation Models

Macro- and Industry Analysis of Share Markets

Qualitative Stock Selection

Quantitative Company Analysis

Futures and Forward Contracts

Option Contracts

Advanced Issues in Options

Alternative Investments

Portfolio Management

Performance Evaluation of Managed Funds

Filters