The betas for the market portfolio and risk-free security are: $\begin{array}{lcc} &\text { Market } & \text { Risk-free } \\ \hline \text { I. } & 0 & 1 \\ \text { II. } & 1 & 0 \\ \text { III. } & -1 & 1 \\ \text { IV. } & 1 & -1 \\ \text { V } & 2 & 1 \end{array}$

A) I B) II C) III D) IV E) V A) I B) II C) III D) IV E) V

Exhibit 7-3 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) \[\begin{array} { c c c c } \text { Period } & \begin{array} { c } \text { Return } \\ \text { of Radtran } \\ \text { (Percent) } \end{array} & \begin{array} { c } \text { Ppecific Index } \\ \text { (Percent) } \end{array} & \begin{array} { c } \text { True } \\ \text { General Index } \\ \text { (Percent) } \end{array} \\ \hline 1 & 10 & 12 & 15 \\ 2 & 12 & 10 & 13 \\ 3 & - 10 & - 8 & - 8 \\ 4 & - 4 & - 10 & 0 \end{array}\] -Refer to Exhibit 7-3. What is the average true return?

A) 1% B) 2% C) 3% D) 4% E) 5% A) 1% B) 2% C) 3% D) 4% E) 5%

Exhibit 7-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas) \[\begin{array} { c c c } \text { Stack } & \text { Factor 1 Loading } & \text { Factor 2 Loading } \\ \hline \mathbf { X } & - 0.55 & 1.2 \\ \mathbf { Y } & - 0.10 & 0.85 \\ \mathbf { Z } & 0.35 & 0.5 \end{array}\] The zero-beta return (λ₀) = 3%, and the risk premia are λ₁ = 10%, λ₂ = 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 7-8. The expected returns for stock X, stock Y, and stock Z are

A) 3%, 8%, 10% B) 7.1%, 10.5%, 8.8% C) 7.1%, 8.8%, 10.5% D) 10%, 5.5%, 14% E) None of the above. A) 3%, 8%, 10% B) 7.1%, 10.5%, 8.8% C) 7.1%, 8.8%, 10.5% D) 10%, 5.5%, 14% E) None of the above.

Exhibit 7-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) \[\begin{array}{c} \underline {\text { Rates of Return }}\\ \begin{array} { c c c } \text { Year } & \text { RA Computer } & \text { Market Index } \\ \hline 1 & 13 & 17 \\ 2 & 9 & 15 \\ 3 & - 11 & 6 \\ 4 & 10 & 8 \\ 5 & 11 & 10 \\ 6 & 6 & 12 \end{array} \end{array}\] -Refer to Exhibit 7-1. Compute the beta for RA Computer using the historic returns presented above.

A) 0.7715 B) 1.2195 C) 1.3893 D) 1.1023 E) -0.7715 A) 0.7715 B) 1.2195 C) 1.3893 D) 1.1023 E) -0.7715

Exhibit 7-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) \[\begin{array}{c} \underline {\text { Rates of Return }}\\ \begin{array} { c c c } \text { Year } & \text { RA Computer } & \text { Market Index } \\ \hline 1 & 13 & 17 \\ 2 & 9 & 15 \\ 3 & - 11 & 6 \\ 4 & 10 & 8 \\ 5 & 11 & 10 \\ 6 & 6 & 12 \end{array} \end{array}\] -Refer to Exhibit 7-1. If you expected return on the Market Index to be 12%, what would you expect the return on RA Computer to be?

A) 7.26% B) 6.75% C) 8.00% D) 9.37% E) -3.29% A) 7.26% B) 6.75% C) 8.00% D) 9.37% E) -3.29%

Exam 7: Asset Pricing Models: Capm and Apt

The table below provides factor risk sensitivities and factor risk premia for a three factor model for a particular asset where factor 1 is MP the growth rate in U.S. industrial production, factor 2 is UI the difference between actual and expected inflation, and factor 3 is UPR the unanticipated change in bond credit spread. Risk Factor Factor Sensitivity (\beta) Risk Premium (\lambda) MP 1.76 0.0259 UI -0.8 -0.0432 UPR 0.87 0.0149 Calculate the expected excess return for the asset.

(Multiple Choice)

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Question 101

Consider a risky asset that has a standard deviation of returns of 15. Calculate the correlation between the risky asset and a risk free asset.

(Multiple Choice)

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Question 102

In a micro-economic (or characteristic) based risk factor model, which factor would be one of many appropriate factors?

(Multiple Choice)

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Question 103

Calculate the expected return for A Industries which has a beta of 1.75 when the risk free rate is 0.03 and you expect the market return to be 0.11.

(Multiple Choice)

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Question 104

Since many of the assumptions made by the capital market theory are unrealistic, the theory is not applicable in the real world.

(True/False)

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Question 105

Assume the risk-free rate is 4.5% and the expected return on the market is 11%. You anticipate Stock XYZ to sell for $28 at the end of next year and pay a dividend of $2. The stock is currently selling for $26.50 with a beta of 1.2. You currently hold stock XYZ in a well-diversified portfolio. Assuming you have money to invest, what should you do?

(Multiple Choice)

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Question 106

The market portfolio consists of all

(Multiple Choice)

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Question 107

All portfolios on the capital market line are

(Multiple Choice)

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Question 108

A stock has a beta of the stock is 1.25. The risk free rate is 5% and the return on the market is 6%. The estimated return for the stock is 14%. According to the CAPM you should

(Multiple Choice)

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Question 109

The separation theorem divides decisions on from decisions on .

(Multiple Choice)

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Question 110

The betas for the market portfolio and risk-free security are: Market Risk-free I. 0 1 II. 1 0 III. -1 1 IV. 1 -1 V 2 1

(Multiple Choice)

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Question 111

According to the APT model all securities should be priced such that riskless arbitrage is possible.

(True/False)

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Question 112

The APT does not require a market portfolio.

(True/False)

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Question 113

The expected return for a stock, calculated using the CAPM, is 25%. The risk free rate is 7.5% and the beta of the stock is 0.80. Calculate the implied return on the market.

(Multiple Choice)

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Question 114

Exhibit 7-3 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Period Return of Radtran (Percent) Ppecific Index (Percent) True General Index (Percent) 1 10 12 15 2 12 10 13 3 -10 -8 -8 4 -4 -10 0 -Refer to Exhibit 7-3. What is the average true return?

(Multiple Choice)

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Question 115

The rate of return on a risk free asset should equal the

(Multiple Choice)

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Question 116

Exhibit 7-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas) Stack Factor 1 Loading Factor 2 Loading -0.55 1.2 -0.10 0.85 0.35 0.5 The zero-beta return (λ₀) = 3%, and the risk premia are λ₁ = 10%, λ₂ = 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 7-8. The expected returns for stock X, stock Y, and stock Z are

(Multiple Choice)

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Question 117

Exhibit 7-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Year RA Computer Market Index 1 13 17 2 9 15 3 -11 6 4 10 8 5 11 10 6 6 12 -Refer to Exhibit 7-1. Compute the beta for RA Computer using the historic returns presented above.

(Multiple Choice)

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Question 118

Exhibit 7-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Year RA Computer Market Index 1 13 17 2 9 15 3 -11 6 4 10 8 5 11 10 6 6 12 -Refer to Exhibit 7-1. If you expected return on the Market Index to be 12%, what would you expect the return on RA Computer to be?

(Multiple Choice)

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Question 119

Which of the following statements about the risk-free asset is correct?

(Multiple Choice)

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Question 120

Consider a risky asset that has a standard deviation of returns of 15. Calculate the correlation between the risky asset and a risk free asset.

In a micro-economic (or characteristic) based risk factor model, which factor would be one of many appropriate factors?

Calculate the expected return for A Industries which has a beta of 1.75 when the risk free rate is 0.03 and you expect the market return to be 0.11.

Since many of the assumptions made by the capital market theory are unrealistic, the theory is not applicable in the real world.

The market portfolio consists of all

All portfolios on the capital market line are

A stock has a beta of the stock is 1.25. The risk free rate is 5% and the return on the market is 6%. The estimated return for the stock is 14%. According to the CAPM you should

The separation theorem divides decisions on from decisions on .

The betas for the market portfolio and risk-free security are: Market Risk-free I. 0 1 II. 1 0 III. -1 1 IV. 1 -1 V 2 1

According to the APT model all securities should be priced such that riskless arbitrage is possible.

The APT does not require a market portfolio.

The expected return for a stock, calculated using the CAPM, is 25%. The risk free rate is 7.5% and the beta of the stock is 0.80. Calculate the implied return on the market.

Exhibit 7-3 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Period Return of Radtran (Percent) Ppecific Index (Percent) True General Index (Percent) 1 10 12 15 2 12 10 13 3 -10 -8 -8 4 -4 -10 0 -Refer to Exhibit 7-3. What is the average true return?

The rate of return on a risk free asset should equal the

Exhibit 7-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Year RA Computer Market Index 1 13 17 2 9 15 3 -11 6 4 10 8 5 11 10 6 6 12 -Refer to Exhibit 7-1. Compute the beta for RA Computer using the historic returns presented above.

Exhibit 7-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Year RA Computer Market Index 1 13 17 2 9 15 3 -11 6 4 10 8 5 11 10 6 6 12 -Refer to Exhibit 7-1. If you expected return on the Market Index to be 12%, what would you expect the return on RA Computer to be?

Which of the following statements about the risk-free asset is correct?

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

Filters

Exam 7: Asset Pricing Models: Capm and Apt

Consider a risky asset that has a standard deviation of returns of 15. Calculate the correlation between the risky asset and a risk free asset.

In a micro-economic (or characteristic) based risk factor model, which factor would be one of many appropriate factors?

Calculate the expected return for A Industries which has a beta of 1.75 when the risk free rate is 0.03 and you expect the market return to be 0.11.

Since many of the assumptions made by the capital market theory are unrealistic, the theory is not applicable in the real world.

The market portfolio consists of all

All portfolios on the capital market line are

A stock has a beta of the stock is 1.25. The risk free rate is 5% and the return on the market is 6%. The estimated return for the stock is 14%. According to the CAPM you should

The separation theorem divides decisions on ____ from decisions on ____.

The betas for the market portfolio and risk-free security are: Market Risk-free I. 0 1 II. 1 0 III. -1 1 IV. 1 -1 V 2 1

According to the APT model all securities should be priced such that riskless arbitrage is possible.

The APT does not require a market portfolio.

The expected return for a stock, calculated using the CAPM, is 25%. The risk free rate is 7.5% and the beta of the stock is 0.80. Calculate the implied return on the market.

Exhibit 7-3 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Period Return of Radtran (Percent) Ppecific Index (Percent) True General Index (Percent) 1 10 12 15 2 12 10 13 3 -10 -8 -8 4 -4 -10 0 -Refer to Exhibit 7-3. What is the average true return?

The rate of return on a risk free asset should equal the

Exhibit 7-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Year RA Computer Market Index 1 13 17 2 9 15 3 -11 6 4 10 8 5 11 10 6 6 12 -Refer to Exhibit 7-1. Compute the beta for RA Computer using the historic returns presented above.

Exhibit 7-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Year RA Computer Market Index 1 13 17 2 9 15 3 -11 6 4 10 8 5 11 10 6 6 12 -Refer to Exhibit 7-1. If you expected return on the Market Index to be 12%, what would you expect the return on RA Computer to be?

Which of the following statements about the risk-free asset is correct?

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

Filters

The separation theorem divides decisions on from decisions on .