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2012-03-13 13:53:09

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  1. Which statement is false?
    The weaker the correlation between two assets, the smaller the rduction of risk attainable by holding positive amounts of these assets in a portfolio.
  2. Undiversified portfolios are suboptimal because
    they do not offer higher returns even though they expose investors to unsystematic risk
  3. If one stock's variance and correlation with the market stay fixed, while all other stocks in the market experience an increase in variance but no change in correlation, then the exceptional stock's beta will
  4. The of a particualr asset equals the covariance of the asset's returns with the returns on overall market portfolio divided by the portfolio's variance
  5. The variance of any two-asset portfolio depends on these factors
    the weight invested in each asset, the variance of each asset, the covariance between the two assets
  6. Which of the following characterisitics of return is represented in percent squared units
  7. Rank the following four assets and the inflation rate from high to low in the United Kingdom
    stocks, inflaiton, bonds, bills
  8. The "feasible set" and "efficient set" differ because
    the feasible set consists of all possible portfolios of assets, whereas the effecient set includes only those portfolios which maximize expected returns for any given level of volatility
  9. If the riskless rate increases the optimal risky portfolio will have a expected return and a standard deviation
    higher, higher
  10. Alice is considering two stocks. Stock A has a beta of .8 while stock B has a beta of 1.6. The risk premium is 4%. Alice believes the expected return on stock B would be twice as high as the expected return on A, and therefore she should invest in stock B. Which of the following statements is true?
    Alice is incorrect regarding B's expected return; however, B does provide a higher expected return than A.
  11. Goodbuy stock has a beta of 2.5. The expected return on GoodBuy is 28.75%, while the expected return on the market portfolio is only 14%. The risk-free rate is 3%. Because GoodBuy lies the SML, it is considered .
    Below, overpriced
  12. If the slope of the Security Market Line is 9% and the expected return on the maret porfolio is 14%, the risk free rate and the market risk premium
    is 5%; is 9%
  13. In equilibrium if all investors will hold some combination of the market portfolio and the risk-free asset (according to CAPM) an asset with higher variance and lower expected return than what could be obtained on the CML can survive
    if it weakly covaries witht the market
  14. Company XYZ has an R-squared and beta of .5 and 1.7 respectively, company ABC has an r-squared of beta .7 and .7 respectively. This suggests:
    Company XYZ has greater systematic and unsystematic risk than company ABC
  15. The Fama-French model asserts that a firm's exposure to SMB and HML risk are important in explaining expected returns. Which of the following is consistent with the F-F model
    a firm that has a positive size beta and a positive book-to-market beta has high expected returns
  16. A portfolio is if it offers the highest expected return among the group of portfolios with equal or less volatility
  17. The quantifies the relationship between the expected return and standard deviation for portfolios consisting of the risk-free asset and the optimal risky portfolio
  18. What really distinguishes the Fama-French approach from both the CAPM and the APT is that it is an entirely empirical attempt to model
    asset return
  19. Adding real estate should move the effecient frontier relative to including only stocks
    up and to the left
  20. When its returns are regrewssed on the market's a stock with a hi beta will have a term in the regression
    high slope
  21. The market portfolio includes
    All risky assets
  22. Consider an asset that currently plots below the security market line
    The asset is underpriced given its level of risk and its price should rise until it plots the SML
  23. Empirical tests have raised concerns about the CAPM, including
    The CAPM is silent whether short-term or long-term risk free rates should be used
  24. Two researches using the CAPM, generate different estimates for the same stock. Examining these results the likely source of the difference is
    The researches use different methods for determinig beta
  25. In addition to the market-risk premium and a market to book facto the FAma French model adds
    a small-firm size factor
  26. In addition to the market risk premium and a firm-size factor the Fama French model adds
    a high market to book factor
  27. Why shoyuld practitioners be concerned about the problems of the empirical tests of CAPM
    The challanges empirical researches face testing the CAPM are very similar to the challenges practitionars face employing CAPM