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

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Which of the following is true about the impact on market price of a security when a company makes an announcement and the market has discounted the news?

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Question 41

Assume that the single factor APT model applies and a portfolio exists such that 1/2 of the funds are invested in Security Q and the rest in the risk-free asset.Security Q has a beta of 1.8.The portfolio has a beta of:

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Question 42

A factor is a variable that:

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Question 43

Calculate the stock's total return if the company announces that an important patent filing has been granted sooner than expected and will earn the company 5% more in return.

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Question 44

An investor is considering the three stocks given below: A. Stock B and C: Rp = .5(13.3%)+ .5(9.2%)= 11.25% C.Demonstrate that holding stock A actually reduces risk by comparing the risk of a portfolio equally weighted between stock B and T-Bills with a portfolio equally weighted between stocks B and

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