Exam 9: The Capital Asset Pricing Model

Which of the following statements about the mutual fund theorem is true? I.It is similar to the separation property. II.It implies that a passive investment strategy can be efficient. III.It implies that efficient portfolios can be formed only through active strategies. IV.It means that professional managers have superior security selection strategies.

A security has an expected rate of return of 0.10 and a beta of 1.1.The market expected rate of return is 0.08 and the risk-free rate is 0.05.The alpha of the stock is

For the CAPM that examines illiquidity premiums,if there is correlation among assets due to common systematic risk factors,the illiquidity premium on asset i is a function of

Your opinion is that Boeing has an expected rate of return of 0.112.It has a beta of 0.92.The risk-free rate is 0.04 and the market expected rate of return is 0.10.According to the Capital Asset Pricing Model,this security is

The risk-free rate is 5 percent.The expected market rate of return is 11 percent.If you expect stock X with a beta of 2.1 to offer a rate of return of 15 percent,you should

You invest $200 in security A with a beta of 1.4 and $800 in security B with a beta of 0.3.The beta of the resulting portfolio is

Your opinion is that Boeing has an expected rate of return of 0.08.It has a beta of 0.92.The risk-free rate is 0.04 and the market expected rate of return is 0.10.According to the Capital Asset Pricing Model,this security is

The CAPM applies to

List and discuss two of the assumptions of the CAPM.

An underpriced security will plot

Which statement is true regarding the market portfolio?

The risk-free rate is 4 percent.The expected market rate of return is 12 percent.If you expect stock X with a beta of 1.0 to offer a rate of return of 10 percent,you should

Assume that a security is fairly priced and has an expected rate of return of 0.13.The market expected rate of return is 0.13 and the risk-free rate is 0.04.The beta of the stock is ___.

You invest 55% of your money in security A with a beta of 1.4 and the rest of your money in security B with a beta of 0.9.The beta of the resulting portfolio is

An overpriced security will plot

Assume that a security is fairly priced and has an expected rate of return of 0.17.The market expected rate of return is 0.11 and the risk-free rate is 0.04.The beta of the stock is ___.

You invest $600 in a security with a beta of 1.2 and $400 in another security with a beta of 0.90.The beta of the resulting portfolio is

Studies of liquidity spreads in security markets have shown that

The expected return-beta relationship

As a financial analyst,you are tasked with evaluating a capital budgeting project.You were instructed to use the IRR method and you need to determine an appropriate hurdle rate.The risk-free rate is 4 percent and the expected market rate of return is 11 percent.Your company has a beta of 1.0 and the project that you are evaluating is considered to have risk equal to the average project that the company has accepted in the past.According to CAPM,the appropriate hurdle rate would be ______%.