Question 1

Which of the following is the correct calculation for the required rate of return under the CAPM?

Accepted Answer

A) beta (market risk premium) 
B) beta + market risk premium 
C) risk-free rate + risk premium 
D) risk-free rate(market risk premium)

Question 2

The separation theorem states that:

Accepted Answer

A) systematic risk is separate from unsystematic risk. 
B) individual security risk is separate from portfolio risk. 
C) the investment decision is separate from the financing decision. 
D) borrowing portfolio is separate from the lending portfolio.

Question 3

Which of the following statements about the difference between the SML and the CML is TRUE?

Accepted Answer

A) The intercept of the CML is the origin while the intercept of the SML is RF. 
B) CML consists of efficient portfolios,while the SML is concerned with all portfolios or securities. 
C) CML could be downward sloping while that is impossible for the SML. 
D) CML and the SML are essentially the same except in terms of the securities represented.

Question 4

The APT is based on the:

Accepted Answer

A) law of averages. 
B) law of attraction. 
C) law of accelerating return. 
D) law of one price.

Question 5

The slope of the CML is the:

Accepted Answer

A) standard deviation for efficient portfolios.::::: 
B) market price of risk for efficient portfolios. 
C) risk-free rate. 
D) risk premium for the market portfolio.

Question 6

Under the Market Model,the regression line that results when the return of a security is plotted against the market index return is the:

Accepted Answer

A) SML. 
B) CML. 
C) characteristic line. 
D) slope.

Question 7

The CML states that all investors should invest in the same portfolio of risky assets.

Accepted Answer

A) True 
 B)False

Question 8

Why is market risk sometimes said to be the "relevant" risk for a portfolio manager? What is the measure of market risk?

Accepted Answer

The answer of Why is market risk sometimes said to...

Question 9

The market has an expected return of 13 percent and the risk-free rate is 5.5 percent.If Merrill Lynch has a beta of 1.85,what is the required return for Merrill Lynch?

Accepted Answer

The answer of The market has an expected return of...

Question 10

Positive theory refers to a theory that

Accepted Answer

A) explains how economic participants should act 
B) describes how economic participants act 
C) is optimistic 
D) has been shown to have high explanatory power as a result of empirical testing

Question 11

None of the asset-pricing models assume that the market is perfect.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is an assumption of the CMT?

Accepted Answer

A) Single investors can affect the market by their buying and selling decisions. 
B) There is no inflation. 
C) Investors prefer capital gains over dividends. 
D) Different investors have different probability distributions..

Question 13

The most volatile stocks have beta's near zero.

Accepted Answer

A) True 
 B)False

Question 14

The expected market return is 9 percent.The risk-free rate of return is 1 percent,and XYZ Co.has a beta of 1.4.The risk premium is

Accepted Answer

A) 8 percent. 
B) 11.2 percent. 
C) 12.2 percent. 
D) 10.3 percent

Question 15

Using the separation theorem,it is necessary to match each investor's indifference curves with a particular efficient portfolio.

Accepted Answer

A) True 
 B)False

Question 16

A less restrictive form of the Single Index Model is the:

Accepted Answer

A) Risk-free Model. 
B) CAPM. 
C) CML. 
D) Market Model.

Question 17

What are the assumptions in the CAPM? Can these be relaxed without destroying the conclusions of the model?

Accepted Answer

The answer of What are the assumptions in the CAPM?...

Question 18

Suppose the SML has a risk-free rate of 5 percent and an expected market return of 15 percent.Now suppose that the SML shifts,changing slope,so that k_RF is still 5 percent but k_M is now 16 percent.What does this shift suggest about investors' risk aversion? If the slope were to change downward,what would that suggest?

Accepted Answer

The answer of Suppose the SML has a risk-free rate...

Question 19

The expected market return is 16 percent.The risk-free rate of return is 7 percent,and BC Co.has a beta of 1.1.Their required rate of return is

Accepted Answer

A) 17.6 percent. 
B) 16.0 percent. 
C) 16.9 percent. 
D)  	23.0 percent.

Question 20

Two points define a straight line.What two points could be most readily identified to estimate the SML?

Accepted Answer

The answer of Two points define a straight line.What two...

Exam 9: Asset Pricing Models

Which of the following is the correct calculation for the required rate of return under the CAPM?

The separation theorem states that:

Which of the following statements about the difference between the SML and the CML is TRUE?

The APT is based on the:

The slope of the CML is the:

Under the Market Model,the regression line that results when the return of a security is plotted against the market index return is the:

The CML states that all investors should invest in the same portfolio of risky assets.

Why is market risk sometimes said to be the "relevant" risk for a portfolio manager? What is the measure of market risk?

The market has an expected return of 13 percent and the risk-free rate is 5.5 percent.If Merrill Lynch has a beta of 1.85,what is the required return for Merrill Lynch?

Positive theory refers to a theory that

None of the asset-pricing models assume that the market is perfect.

Which of the following is an assumption of the CMT?

The most volatile stocks have beta's near zero.

The expected market return is 9 percent.The risk-free rate of return is 1 percent,and XYZ Co.has a beta of 1.4.The risk premium is

Using the separation theorem,it is necessary to match each investor's indifference curves with a particular efficient portfolio.

A less restrictive form of the Single Index Model is the:

What are the assumptions in the CAPM? Can these be relaxed without destroying the conclusions of the model?

The expected market return is 16 percent.The risk-free rate of return is 7 percent,and BC Co.has a beta of 1.1.Their required rate of return is

Two points define a straight line.What two points could be most readily identified to estimate the SML?