Question 1

The CAPM assumes that asset returns are positively skewed but otherwise normal.

Accepted Answer

A) True 
 B)False

Question 2

Calculate the beta for an asset with a variance of 10%,where the market has a variance of 15% and a covariance with the asset of 20%.

Accepted Answer

A)  $ 0.15 $ 
B)  $ 1.33 $ 
C)  $ 0.75 $ 
D)  $ 1.50 $ 
A)  $ 0.15 $ 
B)  $ 1.33 $ 
C)  $ 0.75 $ 
D)  $ 1.50 $

Question 3

The SML is valid for _______________,and the CML is valid for ______________.

Accepted Answer

A) only individual assets;well-diversified portfolios only 
B) only well-diversified portfolios;only individual assets 
C) both well-diversified portfolios and individual assets;both well-diversified portfolios and individual assets 
D) both well-diversified portfolios and individual assets;well-diversified portfolios only 
A) only individual assets;well-diversified portfolios only 
B) only well-diversified portfolios;only individual assets 
C) both well-diversified portfolios and individual assets;both well-diversified portfolios and individual assets 
D) both well-diversified portfolios and individual assets;well-diversified portfolios only

Question 4

Which of the following is not a characteristic of a portfolio that lies on both the capital market line and the security market line?

Accepted Answer

A)  low variance 
B)  zero correlation with the market 
C)  both a and b 
D)  efficiency 
A)  low variance 
B)  zero correlation with the market 
C)  both a and b 
D)  efficiency

Question 5

Assume the CAPM is the correct asset pricing model.An asset has a standard deviation of 30% and the market has a standard deviation of 20%.What would the correlation of the asset with the market need to be if the asset were to have the same expected return as the risk-free asset?

Accepted Answer

A)  $ -0.200 $ 
B)  $ 0.000 $ 
C)  $ 0.200 $ 
D)  $ 0.300 $ 
A)  $ -0.200 $ 
B)  $ 0.000 $ 
C)  $ 0.200 $ 
D)  $ 0.300 $

Question 6

Where thin trading is present in a market index used for the approximation of a beta,the beta will be __________ for a thinly traded company,and __________ for a frequently traded stock.

Accepted Answer

A)  understated; overstated 
B)  overstated; understated 
C)  understated; understated 
D)  overstated; overstated 
A)  understated; overstated 
B)  overstated; understated 
C)  understated; understated 
D)  overstated; overstated

Question 7

A continuous time version of the CAPM was developed by Oliver (1997).

Accepted Answer

A) True 
 B)False

Question 8

Beta stability tends to:

Accepted Answer

A)  increase with an increase in portfolio size 
B)  decrease with an increase in market size 
C)  decrease over time 
D)  apply better the smaller the company 
A)  increase with an increase in portfolio size 
B)  decrease with an increase in market size 
C)  decrease over time 
D)  apply better the smaller the company

Question 9

Arbitrage is based on the idea that _________.

Accepted Answer

A) assets with identical risks must have the same expected rate of return 
B) securities with similar risk should sell at different prices 
C) the expected returns from equally risky assets are different 
D) markets are perfectly efficient 
A) assets with identical risks must have the same expected rate of return 
B) securities with similar risk should sell at different prices 
C) the expected returns from equally risky assets are different 
D) markets are perfectly efficient

Question 10

Assume the CAPM is the correct asset pricing model,the risk-free rate of return is 6%,and the market portfolio has an expected return and a standard deviation of 16% and 0.10%,respectively.An investor has a portfolio consisting of asset A,which has a beta of 0.6,and asset B,which has a beta of 0.8.If the investor wishes to earn a return identical to that of the market portfolio,what weight should the investor place in assets A and B?

Accepted Answer

A)  $ -200 \% $ in asset $ A $ and $ 300 \% $ in asset $ B $ 
B)  $ -100 \% $ in asset $ A $ and $ 200 \% $ in asset $ B $ 
C)  $ 20 \% $ in asset A and $ 80 \% $ in asset B 
D)  $ 40 \% $ in asset $ A $ and $ 60 \% $ in asset B 
A)  $ -200 \% $ in asset $ A $ and $ 300 \% $ in asset $ B $ 
B)  $ -100 \% $ in asset $ A $ and $ 200 \% $ in asset $ B $ 
C)  $ 20 \% $ in asset A and $ 80 \% $ in asset B 
D)  $ 40 \% $ in asset $ A $ and $ 60 \% $ in asset B

Question 11

An asset has a standard deviation of 30% and a correlation with the market portfolio of 0.60.If the market has a standard deviation of 30%,how much lower is the beta of the asset relative to the market?

Accepted Answer

A)  $ 0.05 $ 
B)  $ 0.10 $ 
C)  $ 0.18 $ 
D)  $ 0.40 $ 
A)  $ 0.05 $ 
B)  $ 0.10 $ 
C)  $ 0.18 $ 
D)  $ 0.40 $

Question 12

Expected returns are also called:

Accepted Answer

A)  ex-post returns 
B)  ex-ante returns 
C)  cost of capital 
D)  required rate of return 
A)  ex-post returns 
B)  ex-ante returns 
C)  cost of capital 
D)  required rate of return

Question 13

Consider the CAPM.The expected return on the market is 18%.The expected return on a stock with a beta of 1.2 is 20%.What is the risk-free rate?

Accepted Answer

A) 2% 
B) 6% 
C) 8% 
D) 12% 
A) 2% 
B) 6% 
C) 8% 
D) 12%

Question 14

The beta of the market is equal to minus 1.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is a testable proposition in empirical regression tests of the CAPM of average excess returns against beta?

Accepted Answer

A)  The intercept is zero. 
B)  The beta coefficient is the market risk premium. 
C)  The market risk premium is greater than the risk-free rate 
D)  all of the aboye 
A)  The intercept is zero. 
B)  The beta coefficient is the market risk premium. 
C)  The market risk premium is greater than the risk-free rate 
D)  all of the aboye

Question 16

According to the CAPM,if the expected return on the market return is 5% and the risk-free rate is 2%,the beta of a portfolio with a 6.5% return is 2.0.

Accepted Answer

A) True 
 B)False

Question 17

In empirical tests of the CAPM in excess return form,the intercept in a regression of average returns against beta should be:

Accepted Answer

A)  Zero 
B)  one 
C)  the risk-free rate 
D)  none of the above 
A)  Zero 
B)  one 
C)  the risk-free rate 
D)  none of the above

Question 18

An asset has a standard deviation of 15% and a correlation with the market portfolio of 0.46.If the market has a standard deviation of 25%,what is the beta of the asset?

Accepted Answer

A)  $ 0.25 $ 
B)  $ 0.31 $ 
C)  $ 0.27 $ 
D)  $ 0.28 $ 
A)  $ 0.25 $ 
B)  $ 0.31 $ 
C)  $ 0.27 $ 
D)  $ 0.28 $

Question 19

The zero-beta form of the CAPM uses a zero-beta portfolio in place of the return on the market portfolio.

Accepted Answer

A) True 
 B)False

Question 20

An asset in the Australian market has a beta of 1.0.If the variance of the asset is 10% and the variance of the market index is 25%,what is the asset's covariance with the market?

Accepted Answer

A)  $ 2.50 \% $ 
B)  $ 10.0 \% $ 
C)  $ 25.0 \% $ 
D)  $ 30.0 \% $ 
A)  $ 2.50 \% $ 
B)  $ 10.0 \% $ 
C)  $ 25.0 \% $ 
D)  $ 30.0 \% $

The CAPM assumes that asset returns are positively skewed but otherwise normal.

Calculate the beta for an asset with a variance of 10%,where the market has a variance of 15% and a covariance with the asset of 20%.

The SML is valid for _,and the CML is valid for .

Which of the following is not a characteristic of a portfolio that lies on both the capital market line and the security market line?

Assume the CAPM is the correct asset pricing model.An asset has a standard deviation of 30% and the market has a standard deviation of 20%.What would the correlation of the asset with the market need to be if the asset were to have the same expected return as the risk-free asset?

Where thin trading is present in a market index used for the approximation of a beta,the beta will be for a thinly traded company,and for a frequently traded stock.

A continuous time version of the CAPM was developed by Oliver (1997).

Beta stability tends to:

Arbitrage is based on the idea that _________.

An asset has a standard deviation of 30% and a correlation with the market portfolio of 0.60.If the market has a standard deviation of 30%,how much lower is the beta of the asset relative to the market?

Expected returns are also called:

Consider the CAPM.The expected return on the market is 18%.The expected return on a stock with a beta of 1.2 is 20%.What is the risk-free rate?

The beta of the market is equal to minus 1.

Which of the following is a testable proposition in empirical regression tests of the CAPM of average excess returns against beta?

According to the CAPM,if the expected return on the market return is 5% and the risk-free rate is 2%,the beta of a portfolio with a 6.5% return is 2.0.

In empirical tests of the CAPM in excess return form,the intercept in a regression of average returns against beta should be:

An asset has a standard deviation of 15% and a correlation with the market portfolio of 0.46.If the market has a standard deviation of 25%,what is the beta of the asset?

The zero-beta form of the CAPM uses a zero-beta portfolio in place of the return on the market portfolio.

An asset in the Australian market has a beta of 1.0.If the variance of the asset is 10% and the variance of the market index is 25%,what is the asset's covariance with the market?

The Investment Decision

Australian Financial Markets

The International Investment Environment

Financial Management: Derivative Instruments and Information Sources

Money Market Securities

Bonds

Investor Preferences and Portfolio Concepts

Alternative Risky Asset Pricing Models

Concepts and Applications of Market Efficiency

Equity Valuation Models

Macro- and Industry Analysis of Share Markets

Qualitative Stock Selection

Quantitative Company Analysis

Futures and Forward Contracts

Option Contracts

Advanced Issues in Options

Alternative Investments

Portfolio Management

Performance Evaluation of Managed Funds

Filters

Exam 8: Risky Asset Pricing Models and the Capm

The CAPM assumes that asset returns are positively skewed but otherwise normal.

Calculate the beta for an asset with a variance of 10%,where the market has a variance of 15% and a covariance with the asset of 20%.

The SML is valid for _______________,and the CML is valid for ______________.

Which of the following is not a characteristic of a portfolio that lies on both the capital market line and the security market line?

Assume the CAPM is the correct asset pricing model.An asset has a standard deviation of 30% and the market has a standard deviation of 20%.What would the correlation of the asset with the market need to be if the asset were to have the same expected return as the risk-free asset?

Where thin trading is present in a market index used for the approximation of a beta,the beta will be __________ for a thinly traded company,and __________ for a frequently traded stock.

A continuous time version of the CAPM was developed by Oliver (1997).

Beta stability tends to:

Arbitrage is based on the idea that _________.

An asset has a standard deviation of 30% and a correlation with the market portfolio of 0.60.If the market has a standard deviation of 30%,how much lower is the beta of the asset relative to the market?

Expected returns are also called:

Consider the CAPM.The expected return on the market is 18%.The expected return on a stock with a beta of 1.2 is 20%.What is the risk-free rate?

The beta of the market is equal to minus 1.

Which of the following is a testable proposition in empirical regression tests of the CAPM of average excess returns against beta?

According to the CAPM,if the expected return on the market return is 5% and the risk-free rate is 2%,the beta of a portfolio with a 6.5% return is 2.0.

In empirical tests of the CAPM in excess return form,the intercept in a regression of average returns against beta should be:

An asset has a standard deviation of 15% and a correlation with the market portfolio of 0.46.If the market has a standard deviation of 25%,what is the beta of the asset?

The zero-beta form of the CAPM uses a zero-beta portfolio in place of the return on the market portfolio.

An asset in the Australian market has a beta of 1.0.If the variance of the asset is 10% and the variance of the market index is 25%,what is the asset's covariance with the market?

The Investment Decision

Australian Financial Markets

The International Investment Environment

Financial Management: Derivative Instruments and Information Sources

Money Market Securities

Bonds

Investor Preferences and Portfolio Concepts

Alternative Risky Asset Pricing Models

Concepts and Applications of Market Efficiency

Equity Valuation Models

Macro- and Industry Analysis of Share Markets

Qualitative Stock Selection

Quantitative Company Analysis

Futures and Forward Contracts

Option Contracts

Advanced Issues in Options

Alternative Investments

Portfolio Management

Performance Evaluation of Managed Funds

Filters

The SML is valid for _,and the CML is valid for .

Where thin trading is present in a market index used for the approximation of a beta,the beta will be for a thinly traded company,and for a frequently traded stock.