Question 1

What is the beta for a portfolio with an expected return of 12.5%?

Accepted Answer

A)  0 
B)  1 
C)  1.5 
D)  2 
A)  0 
B)  1 
C)  1.5 
D)  2

Question 2

The graph of the relationship between expected return and beta in the CAPM context is called the ________.

Accepted Answer

A)  CML 
B)  CAL 
C)  SML 
D)  SCL 
A)  CML 
B)  CAL 
C)  SML 
D)  SCL

Question 3

Consider the CAPM. The risk-free rate is 5%, and the expected return on the market is 15%. What is the beta on a stock with an expected return of 17%?

Accepted Answer

A)  .5 
B)  .7 
C)  1 
D)  1.2 
A)  .5 
B)  .7 
C)  1 
D)  1.2

Question 4

An adjusted beta will be ________ than the unadjusted beta.

Accepted Answer

A)  lower 
B)  higher 
C)  closer to 1 
D)  closer to 0 
A)  lower 
B)  higher 
C)  closer to 1 
D)  closer to 0

Question 5

An important characteristic of market equilibrium is ________.

Accepted Answer

A)  the presence of many opportunities for creating zero-investment portfolios 
B)  all investors exhibit the same degree of risk aversion 
C)  the absence of arbitrage opportunities 
D)  the lack of liquidity in the market 
A)  the presence of many opportunities for creating zero-investment portfolios 
B)  all investors exhibit the same degree of risk aversion 
C)  the absence of arbitrage opportunities 
D)  the lack of liquidity in the market

Question 6

Empirical results estimated from historical data indicate that betas ________.

Accepted Answer

A)  are always close to zero 
B)  are constant over time 
C)  of all securities are always between zero and 1 
D)  seem to regress toward 1 over time 
A)  are always close to zero 
B)  are constant over time 
C)  of all securities are always between zero and 1 
D)  seem to regress toward 1 over time

Question 7

Consider the single factor APT. Portfolio A has a beta of .2 and an expected return of 13%. Portfolio B has a beta of .4 and an expected return of 15%. The risk-free rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio ________ and a long position in portfolio ________.

Accepted Answer

A)  A; A 
B)  A; B 
C)  B; A 
D)  B; B 
A)  A; A 
B)  A; B 
C)  B; A 
D)  B; B

Question 8

The arbitrage pricing theory was developed by ________.

Accepted Answer

A)  Henry Markowitz 
B)  Stephen Ross 
C)  William Sharpe 
D)  Eugene Fama 
A)  Henry Markowitz 
B)  Stephen Ross 
C)  William Sharpe 
D)  Eugene Fama

Question 9

Arbitrage is ________.

Accepted Answer

A)  an example of the law of one price 
B)  the creation of riskless profits made possible by relative mispricing among securities 
C)  a common opportunity in modern markets 
D)  an example of a risky trading strategy based on market forecasting 
A)  an example of the law of one price 
B)  the creation of riskless profits made possible by relative mispricing among securities 
C)  a common opportunity in modern markets 
D)  an example of a risky trading strategy based on market forecasting

What is the beta for a portfolio with an expected return of 12.5%?

The graph of the relationship between expected return and beta in the CAPM context is called the ________.

Consider the CAPM. The risk-free rate is 5%, and the expected return on the market is 15%. What is the beta on a stock with an expected return of 17%?

An adjusted beta will be ________ than the unadjusted beta.

An important characteristic of market equilibrium is ________.

Empirical results estimated from historical data indicate that betas ________.

The arbitrage pricing theory was developed by ________.

Arbitrage is ________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Efficient Diversification

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Evaluating Investment Performance

International Diversification

Hedge Funds

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Filters

Exam 7: Capital Asset Pricing and Arbitrage Pricing Theory

What is the beta for a portfolio with an expected return of 12.5%?

The graph of the relationship between expected return and beta in the CAPM context is called the ________.

Consider the CAPM. The risk-free rate is 5%, and the expected return on the market is 15%. What is the beta on a stock with an expected return of 17%?

An adjusted beta will be ________ than the unadjusted beta.

An important characteristic of market equilibrium is ________.

Empirical results estimated from historical data indicate that betas ________.

The arbitrage pricing theory was developed by ________.

Arbitrage is ________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Efficient Diversification

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Evaluating Investment Performance

International Diversification

Hedge Funds

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Filters