 |
| 1 | |
Which pricing model provides no guidance concerning the determination of the relevant risk factors? |
| | A) | The multifactor APT. |
| | B) | The CAPM. |
| | C) | Both the CAPM and the multifactor APT. |
| | D) | Neither the CAPM nor the multifactor APT. |
| | E) | None of the above is a true statement. |
|
|
|
| 2 | |
An investor will take as large a position as possible when an equilibrium price relationship is violated. This is an example of _________. |
| | A) | a dominance argument |
| | B) | the mean-variance efficiency frontier |
| | C) | a risk-free arbitrage |
| | D) | the capital asset pricing model |
| | E) | none of the above |
|
|
|
| 3 | |
A zero-investment portfolio with a positive expected return arises when |
| | A) | an investor has downside risk only. |
| | B) | the opportunity set is not tangent to the capital allocation line. |
| | C) | a risk-free arbitrage opportunity exists. |
| | D) | the law of prices is not violated. |
| | E) | none of the above |
|
|
|
| 4 | |
The ____________ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _____________ implies that this relationship holds for all but perhaps a small number of securities. |
| | A) | APT, CAPM |
| | B) | APT, OPM |
| | C) | CAPM, APT |
| | D) | CAPM, OPM |
| | E) | none of the above |
|
|
|
| 5 | |
The APT differs from the CAPM because the APT |
| | A) | places more emphasis on market risk. |
| | B) | recognizes multiple systematic risk factors. |
| | C) | recognizes multiple unsystematic risk factors. |
| | D) | minimizes the importance of diversification. |
| | E) | all of the above |
|
|
|
| 6 | |
The following factors might affect stock returns: |
| | A) | interest rate fluctuations. |
| | B) | the business cycle. |
| | C) | inflation rates. |
| | D) | A and B |
| | E) | all of the above |
|
|
|
| 7 | |
Portfolio X has expected return of 10% and standard deviation of 19%. Portfolio Y has expected return of 12% and standard deviation of 17%. Rational investors will |
| | A) | borrow at the risk free rate and buy X. |
| | B) | sell Y short and buy X. |
| | C) | sell X short and buy Y. |
| | D) | borrow at the risk free rate and buy Y. |
| | E) | lend at the risk free rate and buy Y. |
|
|
|
| 8 | |
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 _________. |
| | A) | A, A |
| | B) | A, B |
| | C) | B, A |
| | D) | B, B |
| | E) | none of the above |
|
|
|
| 9 | |
To take advantage of an arbitrage opportunity, an investor would
- short sell the asset in the low-priced market and buy it in the high-priced market.
- construct a zero investment portfolio that will yield a sure profit.
- make simultaneous trades in two markets without any net investment.
- construct a zero beta investment portfolio that will yield a sure profit.
|
| | A) | I and IV |
| | B) | I and III |
| | C) | II and III |
| | D) | I, III, and IV |
| | E) | II, III, and IV |
|
|
|
| 10 | |
Consider a well-diversified portfolio, A, in a two-factor economy. The risk-free rate is 6%, the risk premium on the first factor portfolio is 4% and the risk premium on the second factor portfolio is 3%. If portfolio A has a beta of 1.2 on the first factor and .8 on the second factor, what is its expected return? |
| | A) | 7.0% |
| | B) | 8.0% |
| | C) | 9.2% |
| | D) | 13.0% |
| | E) | 13.2% |
|
|
.