Question 1

An underpriced security will plot

Accepted Answer

A)  on the Security Market Line.
B)  below the Security Market Line.
C)  above the Security Market Line.
D)  either above or below the Security Market Line depending on its covariance with the market.
E)  either above or below the Security Market Line depending on its standard deviation.F) D) and E)
G) C) and E)

Question 2

An overpriced security will plot

Accepted Answer

A)  on the Security Market Line.
B)  below the Security Market Line.
C)  above the Security Market Line.
D)  either above or below the Security Market Line depending on its covariance with the market.
E)  either above or below the Security Market Line depending on its standard deviation.F) A) and D)
G) A) and C)

Question 3

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 ___.

Accepted Answer

A)  1.25.
B)  1.86.
C)  1.
D)  0.95.
E)  none of the above.F) A) and D)
G) B) and C)

Question 4

Studies of liquidity spreads in security markets have shown that

Accepted Answer

A)  liquid stocks earn higher returns than illiquid stocks.
B)  illiquid stocks earn higher returns than liquid stocks.
C)  both liquid and illiquid stocks earn the same returns.
D)  illiquid stocks are good investments for frequent, short-term traders.
E)  None of the above are true.F) A) and D)
G) B) and C)

Question 5

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

Accepted Answer

A)  the market's volatility.
B)  asset i's volatility.
C)  the trading costs of security i.
D)  the risk-free rate.
E)  the money supply.F) A) and D)
G) A) and C)

Question 6

Which statement is true regarding the market portfolio?

Accepted Answer

A)  It includes all publicly traded financial assets.
B)  It lies on the efficient frontier.
C)  All securities in the market portfolio are held in proportion to their market values.
D)  It is the tangency point between the capital market line and the indifference curve.
E)  A,B,and C are true.F) B) and C)
G) C) and E)

Question 7

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

Accepted Answer

A)  buy stock X because it is overpriced.
B)  sell short stock X because it is overpriced.
C)  sell stock short X because it is underpriced.
D)  buy stock X because it is underpriced.
E)  none of the above,as the stock is fairly priced.F) A) and C)
G) C) and D)

Question 8

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 ______%.

Accepted Answer

A)  4
B)  7
C)  15
D)  11
E)  1F) A) and D)
G) A) and C)

Question 9

List and discuss two of the assumptions of the CAPM.

Accepted Answer

Assumptions are 1) there are many invest...

Question 10

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 ___.

Accepted Answer

A)  1.25.
B)  1.7.
C)  1.
D)  0.95.s.
E)  none of the above.F) B) and E)
G) None of the above

Question 11

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.

Accepted Answer

A)  I and IV
B)  I, II, and IV
C)  I and II
D)  III and IV
E)  II and IVF) A) and C)
G) A) and E)

Question 12

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

Accepted Answer

A)  buy stock X because it is overpriced.
B)  sell short stock X because it is overpriced.
C)  sell stock short X because it is underpriced.
D)  buy stock X because it is underpriced.
E)  none of the above,as the stock is fairly priced.F) C) and E)
G) A) and B)

Question 13

The expected return-beta relationship

Accepted Answer

A)  is the most familiar expression of the CAPM to practitioners.
B)  refers to the way in which the covariance between the returns on a stock and returns on the market measures the contribution of the stock to the variance of the market portfolio, which is beta.
C)  assumes that investors hold well-diversified portfolios.
D)  all of the above are true.
E)  none of the above are true.F) A) and E)
G) C) and E)

Question 14

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

Accepted Answer

A)  1.40
B)  1.00
C)  0.52
D)  1.08
E)  0.80F) A) and B)
G) D) and E)

Question 15

The CAPM applies to

Accepted Answer

A)  portfolios of securities only.
B)  individual securities only.
C)  efficient portfolios of securities only.
D)  efficient portfolios and efficient individual securities only.
E)  all portfolios and individual securities.F) B) and C)
G) B) and D)

Question 16

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

Accepted Answer

A)  underpriced.
B)  overpriced.
C)  fairly priced.
D)  cannot be determined from data provided.
E)  none of the above.F) A) and B)
G) C) and D)

Question 17

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

Accepted Answer

A)  1.7%.
B)  -1.7%.
C)  8.3%.
D)  5.5%.
E)  none of the above.F) A) and E)
G) A) and D)

Question 18

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

Accepted Answer

A)  1.466
B)  1.157
C)  0.968
D)  1.082
E)  1.175F) A) and C)
G) D) and E)

Question 19

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

Accepted Answer

A)  1.40
B)  1.00
C)  0.36
D)  1.08
E)  0.80F) C) and E)
G) B) and E)

Question 20

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

Accepted Answer

A)  underpriced.
B)  overpriced.
C)  fairly priced.
D)  cannot be determined from data provided.
E)  none of the above.F) All of the above
G) B) and D)

Exam 9: The Capital Asset Pricing Model

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

Correct Answer
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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 ___.

Correct Answer
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List and discuss two of the assumptions of the CAPM.

Correct Answer
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Assumptions are 1) there are many invest...
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Which statement is true regarding the market portfolio?

Correct Answer
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Studies of liquidity spreads in security markets have shown that

Correct Answer
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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

Correct Answer
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An overpriced security will plot

Correct Answer
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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

Correct Answer
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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

Correct Answer
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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

Correct Answer
verified

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 ___.

Correct Answer
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The CAPM applies to

Correct Answer
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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

Correct Answer
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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

Correct Answer
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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

Correct Answer
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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

Correct Answer
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An underpriced security will plot

Correct Answer
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The expected return-beta relationship

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Exam 9: The Capital Asset Pricing Model

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

Correct AnswerverifiedShow Answer

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 ___.

Correct AnswerverifiedShow Answer

List and discuss two of the assumptions of the CAPM.

Correct AnswerverifiedAssumptions are 1) there are many invest...View AnswerShow Answer

Which statement is true regarding the market portfolio?

Correct AnswerverifiedShow Answer

Studies of liquidity spreads in security markets have shown that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An overpriced security will plot

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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 ___.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The CAPM applies to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An underpriced security will plot

Correct AnswerverifiedShow Answer

The expected return-beta relationship

Correct AnswerverifiedShow Answer

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Assumptions are 1) there are many invest...
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