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 proxy return?

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

Exhibit 7-4 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{ccccc} \text { Stock } & \text { Beta } & \text { Current Price } & \text { Expected Price } & \text { Expected Dividend } \\ \hline \mathrm{X} & 0.8 & \$ 12.50 & \$ 13.10 & \$ 0.80 \\ \mathrm{Y} & 1.1 & \$ 8.25 & \$ 9.76 & \$ 0.20 \\ \mathrm{Z} & 2.1 & \$ 25.70 & \$ 30.04 & \$ 0.00 \end{array}$ -Refer to Exhibit 7-4. What are the expected returns for stocks X, Y, and Z for the next period based on the above prices and dividends? $\begin{array}{lccc} & \mathbf{X} & \mathbf{Y} & \mathbf{Z} \\ \hline \text { I. } & 4.8 \% & 18.3 \% & 16.9 \% \\ \text { II. } & 10.7 \% & 17.5 \% & 14.4 \% \\ \text { III. } & 11.2 \% & 20.7 \% & 16.9 \% \\ \text { IV. } & 12.3 \% & 22.5 \% & 22.3 \% \\ \text { V. } & 13.1 \% & 24.3 \% & 18.2 \% \end{array}$

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

Under the following conditions, what are the expected returns for stocks Y and Z? $\begin{array}{ll} \lambda^{0}=0.05 & b_{y, 1}=0.75 \\ k_{1}=0.06 & b_{y, 2}=1.35 \\ k_{2}=0.05 & b_{z, 1}=1.5 \\ & b_{z, 2}=0.85 \end{array}$

A) 17.61% and 13.23% B) 16.25% and 18.25% C) 13.24% and 28.46% D) 14.83% and 17.69% E) None of the above A) 17.61% and 13.23% B) 16.25% and 18.25% C) 13.24% and 28.46% D) 14.83% and 17.69% E) None of the above

Under the following conditions, what are the expected returns for stocks A and B? $\begin{array}{ll} \lambda^{0}=0.035 & b_{a, 1}=1.00 \\ k_{1}=0.05 & b_{a, 2}=1.40 \\ k_{2}=0.06 & b_{b, 1}=1.70 \\ &b_{b, 2}=0.65 \end{array}$

A) 14.8% and 13.8% B) 19.8% and 29.5% C) 16.0% and 19.8% D) 16.9% and 15.9% E) None of the above A) 14.8% and 13.8% B) 19.8% and 29.5% C) 16.0% and 19.8% D) 16.9% and 15.9% E) None of the above

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 covariance between Radtron and the true index?

A) 57.30 B) 86.50 C) 88.00 D) 92.50 E) 107.90 A) 57.30 B) 86.50 C) 88.00 D) 92.50 E) 107.90

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 beta for Radtron using the true index?

A) 0.87 B) 0.97 C) 1.02 D) 1.15 E) 1.28 A) 0.87 B) 0.97 C) 1.02 D) 1.15 E) 1.28

Exam 7: Asset Pricing Models: Capm and Apt

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 proxy return?

(Multiple Choice)

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Question 121

Exhibit 7-4 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Stock Beta Current Price Expected Price Expected Dividend 0.8 \ 12.50 \ 13.10 \ 0.80 1.1 \ 8.25 \ 9.76 \ 0.20 2.1 \ 25.70 \ 30.04 \ 0.00 -Refer to Exhibit 7-4. What are the expected returns for stocks X, Y, and Z for the next period based on the above prices and dividends? I. 4.8\% 18.3\% 16.9\% II. 10.7\% 17.5\% 14.4\% III. 11.2\% 20.7\% 16.9\% IV. 12.3\% 22.5\% 22.3\% V. 13.1\% 24.3\% 18.2\%

(Multiple Choice)

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Question 122

Under the following conditions, what are the expected returns for stocks Y and Z? =0.05 =0.75 =0.06 =1.35 =0.05 =1.5 =0.85

(Multiple Choice)

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Question 123

Assume that as a portfolio manager the beta of your portfolio is 1.3 and that your performance is exactly on target with the SML data under condition 1. If the true SML data is given by condition 2, how much does your performance differ from the true SML? 1) $\quad \mathrm{RFR}=.08 \quad \quad \quad \mathrm{P}_{\mathrm{m}}($ proxy $)=.11$ 2) $\quad \mathrm{R}_{\mathrm{K}}=.07 \quad \quad \quad \quad \mathrm{R}_{\mathrm{m}}($ true $)=.14$

(Multiple Choice)

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Question 124

The betas of those companies compiled by Value Line Investment Services tend to be almost identical to those compiled by Merrill Lynch.

(True/False)

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Question 125

The expected return for a stock, calculated using the CAPM, is 10.5%. The market return is 9.5% and the beta of the stock is 1.50. Calculate the implied risk-free rate.

(Multiple Choice)

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Question 126

The the number of stocks in a portfolio and the the time period the the portfolio beta.

(Multiple Choice)

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Question 127

In the presence of transactions costs, the SML will be

(Multiple Choice)

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Question 128

Under the following conditions, what are the expected returns for stocks A and B? =0.035 =1.00 =0.05 =1.40 =0.06 =1.70 =0.65

(Multiple Choice)

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Question 129

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 covariance between Radtron and the true index?

(Multiple Choice)

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Question 130

Exhibit 7-7 USE THE FOLLOWING INFORMATION FOR THE NEXT QUESTION(S) (1) Capital markets are perfectly competitive. (2) Quadratic utility function. (3) Investors prefer more wealth to less wealth with certainty. (4) Normally distributed security returns. (5) Representation as a K factor model. (6) A market portfolio that is mean-variance efficient. -Refer to Exhibit 7-7 In the list above which are assumptions of the Arbitrage Pricing Model?

(Multiple Choice)

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Question 131

A friend has some reliable information that the stock of Puddles Company is going to rise from $43.00 to $50.00 per share over the next year. You know that the annual return on the S&P/TSX composite index has been 11% and the 90-day T-bill rate has been yielding 5% per year over the past 10 years. If beta for Puddles is 1.5, will you purchase the stock?

(Multiple Choice)

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Question 132

Calculate the expected return for B Services which has a beta of 0.83 when the risk free rate is 0.05 and you expect the market return to be 0.12.

(Multiple Choice)

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Question 133

Which of the following is not a step required for a multifactor risk model to estimate expected return for an individual stock position?

(Multiple Choice)

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Question 134

There can be only one zero-beta portfolio.

(True/False)

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Question 135

To date, the results of empirical tests of the Arbitrage Pricing Model have been

(Multiple Choice)

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Question 136

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 beta for Radtron using the true index?

(Multiple Choice)

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Question 137

What does Beta measure?

(Multiple Choice)

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Question 138

Assume that as a portfolio manager the beta of your portfolio is 0.85 and that your performance is exactly on target with the SML data under condition 1. If the true SML data is given by condition 2, how much does your performance differ from the true SML? 1) $\quad \mathrm{RFR}=0.0475$ $\quad$ $\quad$ $\quad$ $\mathrm{R}_{\mathrm{m}}(\mathrm{proxy})=0.0975$ 2) $\quad \mathrm{R}_{\mathrm{K}}=0.0325$ $\quad$ $\quad$ $\quad$ $\mathrm{P}_{\mathrm{m}}($ true $)=0.0845$

(Multiple Choice)

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Question 139

A completely diversified portfolio would have a correlation with the market portfolio that is

(Multiple Choice)

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Question 140

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 proxy return?

Under the following conditions, what are the expected returns for stocks Y and Z? =0.05 =0.75 =0.06 =1.35 =0.05 =1.5 =0.85

The betas of those companies compiled by Value Line Investment Services tend to be almost identical to those compiled by Merrill Lynch.

The expected return for a stock, calculated using the CAPM, is 10.5%. The market return is 9.5% and the beta of the stock is 1.50. Calculate the implied risk-free rate.

The the number of stocks in a portfolio and the the time period the the portfolio beta.

In the presence of transactions costs, the SML will be

Under the following conditions, what are the expected returns for stocks A and B? =0.035 =1.00 =0.05 =1.40 =0.06 =1.70 =0.65

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 covariance between Radtron and the true index?

Calculate the expected return for B Services which has a beta of 0.83 when the risk free rate is 0.05 and you expect the market return to be 0.12.

Which of the following is not a step required for a multifactor risk model to estimate expected return for an individual stock position?

There can be only one zero-beta portfolio.

To date, the results of empirical tests of the Arbitrage Pricing Model have been

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 beta for Radtron using the true index?

What does Beta measure?

A completely diversified portfolio would have a correlation with the market portfolio that is

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

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Exam 7: Asset Pricing Models: Capm and Apt

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 proxy return?

Under the following conditions, what are the expected returns for stocks Y and Z? =0.05 =0.75 =0.06 =1.35 =0.05 =1.5 =0.85

The betas of those companies compiled by Value Line Investment Services tend to be almost identical to those compiled by Merrill Lynch.

The expected return for a stock, calculated using the CAPM, is 10.5%. The market return is 9.5% and the beta of the stock is 1.50. Calculate the implied risk-free rate.

The ____ the number of stocks in a portfolio and the ____ the time period the ____ the portfolio beta.

In the presence of transactions costs, the SML will be

Under the following conditions, what are the expected returns for stocks A and B? =0.035 =1.00 =0.05 =1.40 =0.06 =1.70 =0.65

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 covariance between Radtron and the true index?

Calculate the expected return for B Services which has a beta of 0.83 when the risk free rate is 0.05 and you expect the market return to be 0.12.

Which of the following is not a step required for a multifactor risk model to estimate expected return for an individual stock position?

There can be only one zero-beta portfolio.

To date, the results of empirical tests of the Arbitrage Pricing Model have been

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 beta for Radtron using the true index?

What does Beta measure?

A completely diversified portfolio would have a correlation with the market portfolio that is

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 the number of stocks in a portfolio and the the time period the the portfolio beta.