Consider the multifactor APT. There are two independent economic factors, FS1U1B11S1U1B0and FS1U1B12S1U1B0. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios: \[\begin{array} { | l | l | l | l | } \hline \underline { \text { Portfolio } } & \underline { B \text { on } } \mathbf { E } \underline { 1 } & \underline { \beta \text { on } } \mathrm { F } _ { 2 } & \underline { \text { Expected Return } } \\ \hline \mathrm { A } & 1.0 & 2.0 & 19 \% \\ \hline \mathrm { B } & 2.0 & 0.0 & 12 \% \\ \hline \end{array}\] -Assuming no arbitrage opportunities exist,the risk premium on the factor F2 portfolio should be ___________.

A) 3% B) 4% C) 5% D) 6% E) none of the above A) 3% B) 4% C) 5% D) 6% E) none of the above

Exam 10: Arbitrage Pricing Theory and Multifactor Models of Risk and Return

If you invested in an equally weighted portfolio of stocks B and C,your portfolio return would be _____________ if economic growth was weak.

(Multiple Choice)

4.9/5

(92)

Question 41

The term "arbitrage" refers to

(Multiple Choice)

4.7/5

(79)

Question 42

An arbitrage opportunity exists if an investor can construct a __________ investment portfolio that will yield a sure profit.

(Multiple Choice)

4.9/5

(85)

Question 43

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.

(Multiple Choice)

4.7/5

(78)

Question 44

The factor F in the APT model represents

(Multiple Choice)

4.9/5

(64)

Question 45

Which of the following is true about the security market line (SML)derived from the APT?

(Multiple Choice)

4.9/5

(96)

Question 46

Consider the multifactor model APT with three factors.Portfolio A has a beta of 0.8 on factor 1,a beta of 1.1 on factor 2,and a beta of 1.25 on factor 3.The risk premiums on the factor 1,factor 2,and factor 3 are 3%,5% and 2%,respectively.The risk-free rate of return is 3%.The expected return on portfolio A is __________if no arbitrage opportunities exist.

(Multiple Choice)

4.9/5

(88)

Question 47

A _________ portfolio is a well-diversified portfolio constructed to have a beta of 1 on one of the factors and a beta of 0 on any other factor.

(Multiple Choice)

4.8/5

(81)

Question 48

Consider the multifactor APT. There are two independent economic factors, F₁and F₂. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios: 1.0 2.0 19\% 2.0 0.0 12\% -Assuming no arbitrage opportunities exist,the risk premium on the factor F₂ portfolio should be ___________.

(Multiple Choice)

4.8/5

(79)

Question 49

In the context of the Arbitrage Pricing Theory,as a well-diversified portfolio becomes larger its nonsystematic risk approaches

(Multiple Choice)

4.8/5

(82)

Question 50

Consider a single factor APT.Portfolio A has a beta of 2.0 and an expected return of 22%.Portfolio B has a beta of 1.5 and an expected return of 17%.The risk-free rate of return is 4%.If you wanted to take advantage of an arbitrage opportunity,you should take a short position in portfolio ____ and a long position in portfolio _.

(Multiple Choice)

4.8/5

(89)

Question 51

In a multi-factor APT model,the coefficients on the macro factors are often called ______.

(Multiple Choice)

4.8/5

(73)

Question 52

If you invested in an equally weighted portfolio of stocks A and C,your portfolio return would be ____________ if economic growth was strong.

(Multiple Choice)

4.9/5

(93)

Question 53

Consider a one-factor economy.Portfolio A has a beta of 1.0 on the factor and portfolio B has a beta of 2.0 on the factor.The expected returns on portfolios A and B are 11% and 17%,respectively.Assume that the risk-free rate is 6% and that arbitrage opportunities exist.Suppose you invested $100,000 in the risk-free asset,$100,000 in portfolio B,and sold short $200,000 of portfolio A.Your expected profit from this strategy would be ______________.

(Multiple Choice)

4.9/5

(81)

Question 54

Consider the multifactor APT with two factors.The risk premiums on the factor 1 and factor 2 portfolios are 5% and 6%,respectively.Stock A has a beta of 1.2 on factor 1,and a beta of 0.7 on factor 2.The expected return on stock A is 17%.If no arbitrage opportunities exist,the risk-free rate of return is ___________.

(Multiple Choice)

4.8/5

(71)

Question 55

Portfolio A has expected return of 10% and standard deviation of 19%.Portfolio B has expected return of 12% and standard deviation of 17%.Rational investors will

(Multiple Choice)

4.9/5

(77)

Question 56

Consider a well-diversified portfolio,A,in a two-factor economy.The risk-free rate is 5%,the risk premium on the first factor portfolio is 4% and the risk premium on the second factor portfolio is 6%.If portfolio A has a beta of 0.6 on the first factor and 1.8 on the second factor,what is its expected return?

(Multiple Choice)

4.8/5

(73)

Question 57

In the APT model,what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of •(e_i)equal to 25% and 50 securities?

(Multiple Choice)

4.9/5

(84)

Question 58

In a multi-factor APT model,the coefficients on the macro factors are often called ______.

(Multiple Choice)

4.8/5

(86)

Question 59

If you wanted to take advantage of a risk-free arbitrage opportunity,you should take a short position in ___ and a long position in an equally weighted portfolio of _.

(Multiple Choice)

4.9/5

(80)

Question 60

Showing 41 - 60 of 79

Exam 10: Arbitrage Pricing Theory and Multifactor Models of Risk and Return

If you invested in an equally weighted portfolio of stocks B and C,your portfolio return would be _____________ if economic growth was weak.

The term "arbitrage" refers to

An arbitrage opportunity exists if an investor can construct a __________ investment portfolio that will yield a sure profit.

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.

The factor F in the APT model represents

Which of the following is true about the security market line (SML)derived from the APT?

A _________ portfolio is a well-diversified portfolio constructed to have a beta of 1 on one of the factors and a beta of 0 on any other factor.

In the context of the Arbitrage Pricing Theory,as a well-diversified portfolio becomes larger its nonsystematic risk approaches

In a multi-factor APT model,the coefficients on the macro factors are often called ______.

If you invested in an equally weighted portfolio of stocks A and C,your portfolio return would be ____________ if economic growth was strong.

Portfolio A has expected return of 10% and standard deviation of 19%.Portfolio B has expected return of 12% and standard deviation of 17%.Rational investors will

In the APT model,what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of •(ei)equal to 25% and 50 securities?

In a multi-factor APT model,the coefficients on the macro factors are often called ______.

If you wanted to take advantage of a risk-free arbitrage opportunity,you should take a short position in _________ and a long position in an equally weighted portfolio of _______.

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

Filters

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.

In the APT model,what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of •(e_i)equal to 25% and 50 securities?

If you wanted to take advantage of a risk-free arbitrage opportunity,you should take a short position in ___ and a long position in an equally weighted portfolio of _.