Question 1

Benchmark error

Accepted Answer

A)  refers to the use of an incorrect market proxy in tests of the CAPM. 
B)  can result in inconclusive tests of the CAPM. 
C)  can result in incorrect evaluation measures for portfolio managers. 
D)  a and b. 
E)  a,b,and c. 
A)  refers to the use of an incorrect market proxy in tests of the CAPM. 
B)  can result in inconclusive tests of the CAPM. 
C)  can result in incorrect evaluation measures for portfolio managers. 
D)  a and b. 
E)  a,b,and c.

Question 2

Consider the regression equation:
Ri- rf = g0 + g1bi + g2s2(ei)+ eit
Where:
Ri - rt = the average difference between the monthly return on stock i and the monthly risk-free rate
Bi= the beta of stock i
S2(ei)= a measure of the nonsystematic variance of the stock i.
If you estimated this regression equation and the CAPM was valid,you would expect the estimated coefficient,g1 to be

Accepted Answer

A)  0 
B)  1 
C)  equal to the risk-free rate of return. 
D)  equal to the average difference between the monthly return on the market portfolio and the monthly risk-free rate. 
E)  equal to the average monthly return on the market portfolio. 
A)  0 
B)  1 
C)  equal to the risk-free rate of return. 
D)  equal to the average difference between the monthly return on the market portfolio and the monthly risk-free rate. 
E)  equal to the average monthly return on the market portfolio.

Question 3

Strongest evidence in support of the CAPM has come from demonstrating that

Accepted Answer

A)  the market beta is equal to 1.0. 
B)  non-systematic risk has significant explanatory power in estimating security returns. 
C)  The average return-beta relationship is highly significant. 
D)  The intercept in tests of the excess returns-beta relationship is exactly zero. 
E)  professional investors do not generally out-perform market indexes,demonstrating that the market is efficient. 
A)  the market beta is equal to 1.0. 
B)  non-systematic risk has significant explanatory power in estimating security returns. 
C)  The average return-beta relationship is highly significant. 
D)  The intercept in tests of the excess returns-beta relationship is exactly zero. 
E)  professional investors do not generally out-perform market indexes,demonstrating that the market is efficient.

Question 4

Describe some of the ways the CAPM is applied in practice.

Accepted Answer

The four items mentioned at the beginnin

Question 5

Tests of the CAPM that use regression techniques are subject to inaccuracies because

Accepted Answer

A)  the statistical results used are almost always incorrect. 
B)  the slope coefficient of the regression equation is biased downward. 
C)  the slope coefficient of the regression equation is biased upward. 
D)  the intercept of the regression equation is biased downward. 
E)  the intercept of the regression equation is equal to the risk-free rate. 
A)  the statistical results used are almost always incorrect. 
B)  the slope coefficient of the regression equation is biased downward. 
C)  the slope coefficient of the regression equation is biased upward. 
D)  the intercept of the regression equation is biased downward. 
E)  the intercept of the regression equation is equal to the risk-free rate.

Question 6

The Fama and French three factor model uses ___,___,and ___ as factors.

Accepted Answer

A)  industrial production,term spread,default spread 
B)  industrial production,inflation,default spread 
C)  firm size,book-to-market ratio,market index 
D)  firm size,book-to-market ratio,default spread 
E)  None of these is correct. 
A)  industrial production,term spread,default spread 
B)  industrial production,inflation,default spread 
C)  firm size,book-to-market ratio,market index 
D)  firm size,book-to-market ratio,default spread 
E)  None of these is correct.

Question 7

GARCH models use _________ as the information set used to form estimates of variance.

Accepted Answer

A)  forecasts of market volatility 
B)  rate of return history 
C)  estimated future returns 
D)  beta coefficients 
E)  none of these 
A)  forecasts of market volatility 
B)  rate of return history 
C)  estimated future returns 
D)  beta coefficients 
E)  none of these

Question 8

Which of the following statements is true about models that attempt to measure the empirical performance of the CAPM?

Accepted Answer

A)  The conventional CAPM works better than the conditional CAPM with human capital. 
B)  The conventional CAPM works about the same as the conditional CAPM with human capital. 
C)  The conditional CAPM with human capital yields a better fit for empirical returns than the conventional CAPM. 
D)  Adding firm size to the model specification dramatically improves the fit. 
E)  Adding firm size to the model specification worsens the fit. 
A)  The conventional CAPM works better than the conditional CAPM with human capital. 
B)  The conventional CAPM works about the same as the conditional CAPM with human capital. 
C)  The conditional CAPM with human capital yields a better fit for empirical returns than the conventional CAPM. 
D)  Adding firm size to the model specification dramatically improves the fit. 
E)  Adding firm size to the model specification worsens the fit.

Question 9

Tests of multifactor models indicate

Accepted Answer

A)  the single-factor model has better explanatory power in estimating security returns. 
B)  macroeconomic variables have no explanatory power in estimating security returns. 
C)  it may be possible to hedge some economic factors that affect future consumption risk with appropriate portfolios. 
D)  multifactor models do not work. 
E)  none of these is true. 
A)  the single-factor model has better explanatory power in estimating security returns. 
B)  macroeconomic variables have no explanatory power in estimating security returns. 
C)  it may be possible to hedge some economic factors that affect future consumption risk with appropriate portfolios. 
D)  multifactor models do not work. 
E)  none of these is true.

Question 10

The CAPM is not testable unless

Accepted Answer

A)  the exact composition of the true market portfolio is known and used in the tests. 
B)  all individual assets are included in the market proxy. 
C)  the market proxy and the true market portfolio are highly negatively correlated. 
D)  a and b. 
E)  b and c. 
A)  the exact composition of the true market portfolio is known and used in the tests. 
B)  all individual assets are included in the market proxy. 
C)  the market proxy and the true market portfolio are highly negatively correlated. 
D)  a and b. 
E)  b and c.

Question 11

Consider the regression equation:
Ri - rf = g0 + g1bi + eit
Where:
Ri - rf = the average difference between the monthly return on stock i and the monthly risk-free rate
Bi = the beta of stock i.
This regression equation is used to estimate __________.

Accepted Answer

A)  the security characteristic line 
B)  the security market line 
C)  the capital market line 
D)  a and b 
E)  a,b,and c 
A)  the security characteristic line 
B)  the security market line 
C)  the capital market line 
D)  a and b 
E)  a,b,and c

Benchmark error

Strongest evidence in support of the CAPM has come from demonstrating that

Describe some of the ways the CAPM is applied in practice.

Tests of the CAPM that use regression techniques are subject to inaccuracies because

The Fama and French three factor model uses _,_,and ___ as factors.

GARCH models use _________ as the information set used to form estimates of variance.

Which of the following statements is true about models that attempt to measure the empirical performance of the CAPM?

Tests of multifactor models indicate

The CAPM is not testable unless

Consider the regression equation: R_i - r_f = g₀ + g₁b_i + e_it Where: R_i - r_f = the average difference between the monthly return on stock i and the monthly risk-free rate B_i = the beta of stock i. This regression equation is used to estimate __________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

Filters

Exam 11: Managing Bond Portfolios

Benchmark error

Strongest evidence in support of the CAPM has come from demonstrating that

Describe some of the ways the CAPM is applied in practice.

Tests of the CAPM that use regression techniques are subject to inaccuracies because

The Fama and French three factor model uses ___,___,and ___ as factors.

GARCH models use _________ as the information set used to form estimates of variance.

Which of the following statements is true about models that attempt to measure the empirical performance of the CAPM?

Tests of multifactor models indicate

The CAPM is not testable unless

Consider the regression equation: Ri - rf = g0 + g1bi + eit Where: Ri - rf = the average difference between the monthly return on stock i and the monthly risk-free rate Bi = the beta of stock i. This regression equation is used to estimate __________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

Filters

The Fama and French three factor model uses _,_,and ___ as factors.

Consider the regression equation: R_i - r_f = g₀ + g₁b_i + e_it Where: R_i - r_f = the average difference between the monthly return on stock i and the monthly risk-free rate B_i = the beta of stock i. This regression equation is used to estimate __________.