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| 1 | |
Beta books typically rely on the __________ most recent monthly observations to calculate regression parameters. |
| | A) | 12 |
| | B) | 36 |
| | C) | 60 |
| | D) | 120 |
| | E) | none of the above |
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| 2 | |
Suppose the following equation best describes the evolution of β over time: <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0077861671/1018530/Ch8q2.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (4.0K)</a>]]>
If a stock had a β of 0.6 last year, you would forecast the β to be _______ in the coming year. |
| | A) | 0.45 |
| | B) | 0.60 |
| | C) | 0.70 |
| | D) | 0.75 |
| | E) | none of the above |
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| 3 | |
According to the index model, covariances among security pairs are |
| | A) | due to the influence of a single common factor represented by the market index return. |
| | B) | related to industry-specific events. |
| | C) | usually positive. |
| | D) | extremely difficult to calculate. |
| | E) | A and C |
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| 4 | |
In a single factor model, the return on a stock in a particular period will be related to |
| | A) | macroeconomic events. |
| | B) | firm-specific events. |
| | C) | the error term. |
| | D) | both a and b. |
| | E) | both a and c. |
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| 5 | |
Consider the single-index model. The alpha of a stock is 0%. The return on the market index is 16%. The risk-free rate of return is 5%. The stock earns a return that exceeds the risk-free rate by 11% and there are no firm-specific events affecting the stock performance. The β of the stock is |
| | A) | 1.0. |
| | B) | 0.75. |
| | C) | 2.0. |
| | D) | 1.5. |
| | E) | 1.50. |
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| 6 | |
Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds. If the σ of your portfolio was 0.20 and σ M was 0.16, the β of the portfolio would be approximately |
| | A) | 0.9. |
| | B) | 1.25. |
| | C) | 1.85. |
| | D) | 0.56. |
| | E) | none of the above |
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| 7 | |
Security returns |
| | A) | are usually positively correlated with each other. |
| | B) | are based on both macro events and firm-specific events. |
| | C) | are based on firm-specific events only. |
| | D) | A and B |
| | E) | A and C |
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| 8 | |
Assume that stock market returns do not resemble a single-index structure. An investment fund analyzes 100 stocks in order to construct a mean-variance efficient portfolio constrained by 100 investments. They will need to calculate ____________ covariances. |
| | A) | 45 |
| | B) | 100 |
| | C) | 4,950 |
| | D) | 10,000 |
| | E) | none of the above |
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| 9 | |
The beta of GM stock has been estimated as 1.2 using regression analysis on a sample of historical returns. A commonly used adjustment technique would provide an adjusted beta of |
| | A) | 1.20. |
| | B) | 1.32. |
| | C) | 1.13. |
| | D) | 1.0. |
| | E) | none of the above |
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| 10 | |
The index model for stock A has been estimated with the following result: <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0077861671/1018530/Ch8q10.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (5.0K)</a>]]>
If σM = 0.25 and R2A = 0.25, the standard deviation of return of stock A is _________. |
| | A) | 0.2025 |
| | B) | 0.2500 |
| | C) | 0.4500 |
| | D) | 0.8100 |
| | E) | none of the above |
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