FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 7: Capital Asset Pricing and Arbitrage Pricing Theory

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

Multiple Choice

Review LaterAdd Note

Review Later

If enough investors decide to purchase stocks, they are likely to drive up stock prices, thereby causing ________ and ________.

A) expected returns to fall; risk premiums to fall
B) expected returns to rise; risk premiums to fall
C) expected returns to rise; risk premiums to rise
D) expected returns to fall; risk premiums to rise

E) B) and D)
F) B) and C)

Correct Answer

verified

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

In a well-diversified portfolio, ________ risk is negligible.

A) nondiversifiable
B) market
C) systematic
D) unsystematic

E) B) and C)
F) A) and D)

Correct Answer

verified

Show Answer

Question 23

Multiple Choice

Review LaterAdd Note

Beta is a measure of ________.

Research has identified two systematic factors that affect U.S. stock returns. The factors are growth in industrial production and changes in long-term interest rates. Industrial production growth is expected to be 3%, and long-term interest rates are expected to increase by 1%. You are analyzing a stock that has a beta of 1.2 on the industrial production factor and .5 on the interest rate factor. It currently has an expected return of 12%. However, if industrial production actually grows 5% and interest rates drop 2%, what is your best guess of the stock's return?

Liquidity is a risk factor that ________.

The most significant conceptual difference between the arbitrage pricing theory (APT) and the capital asset pricing model (CAPM) is that the CAPM ________.

Consider the one-factor APT. The standard deviation of return on a well-diversified portfolio is 20%. The standard deviation on the factor portfolio is 12%. The beta of the well-diversified portfolio is approximately ________.

According to the CAPM, the risk premium an investor expects to receive on any stock or portfolio is ________.

According to the CAPM, what is the expected market return given an expected return on a security of 15.8%, a stock beta of 1.2, and a risk-free interest rate of 5%?

What is the expected return on a stock with a beta of .8, given a risk-free rate of 3.5% and an expected market return of 15.5%?

You run a regression of a stock's returns versus a market index and find the following: Based on the data, you know that the stock ________.

Compensation of money managers is ________ based on alpha or other appropriate risk-adjusted measures.

The measure of unsystematic risk can be found from an index model as ________.

Fama and French claim that after controlling for firm size and the ratio of the firm's book value to market value, beta is: I. Highly significant in predicting future stock returns II. Relatively useless in predicting future stock returns III. A good predictor of the firm's specific risk

The risk premium for exposure to aluminum commodity prices is 4%, and the firm has a beta relative to aluminum commodity prices of .6. The risk premium for exposure to GDP changes is 6%, and the firm has a beta relative to GDP of 1.2. If the risk-free rate is 4%, what is the expected return on this stock?

One extensive study found that about ________ of financial managers use CAPM to estimate cost of capital.

The two-factor model on a stock provides a risk premium for exposure to market risk of 12%, a risk premium for exposure to silver commodity prices of 3.5%, and a risk-free rate of 4%. The beta for exposure to market risk is 1, and the beta for exposure to commodity prices is also 1. What is the expected return on the stock?

When all investors analyze securities in the same way and share the same economic view of the world, we say they have ________.

What is the alpha of a portfolio with a beta of 2 and actual return of 15%?

According to the capital asset pricing model, a security with a ________.