Question 1

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.

Question 2

In equilibrium, the marginal price of risk for a risky security must be

Accepted Answer

A)   equal to the marginal price of risk for the market portfolio.
B)   greater than the marginal price of risk for the market portfolio.
C)   less than the marginal price of risk for the market portfolio.
D)   adjusted by its degree of nonsystematic risk.
E)   None of the options are true.

Question 3

Which statement is true regarding the market portfolio? I)  It includes all publicly traded financial assets.
II)  It lies on the efficient frontier.
III)  All securities in the market portfolio are held in proportion to their market values.
IV)  It is the tangency point between the capital market line and the indifference curve.

Accepted Answer

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

Question 4

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.

Question 5

According to the Capital Asset Pricing Model (CAPM) , a well diversified portfolio's rate of return is a function Of

Accepted Answer

A)   systematic risk.
B)   unsystematic risk.
C)   unique risk.
D)   reinvestment risk.

Question 6

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.

Question 7

The market portfolio has a beta of

Accepted Answer

A)   0.
B)   1.
C)   -1.
D)   0.5.

Question 8

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.

Question 9

Your opinion is that Boeing has an expected rate of return of 0.0952. 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.

Question 10

The expected return-beta relationship of the CAPM is graphically represented by

Accepted Answer

A)   the security-market line.
B)   the capital-market line.
C)   the capital-allocation line.
D)   the efficient frontier with a risk-free asset.
E)   the efficient frontier without a risk-free asset.

Question 11

A security has an expected rate of return of 0.13 and a beta of 2.1. The market expected rate of return is 0.09, and the risk-free rate is 0.045. The alpha of the stock is

Accepted Answer

A)   -0.95%.
B)   -1.7%.
C)   8.3%.
D)   5.5%.

Question 12

Given are the following two stocks A and B:   Expected  Security  Rate of return  Beta  A 0.121.2 B 0.141.8\begin{array} { c c c } &{ 	ext { Expected } } \	ext { Security } & 	ext { Rate of return } & 	ext { Beta } \	ext { A } & 0.12 & 1.2 \	ext { B } & 0.14 & 1.8 \\hline\end{array} Security  A  B ​ Expected  Rate of return 0.120.14​ Beta 1.21.8​​  If the expected market rate of return is 0.09, and the risk-free rate is 0.05, which security would be considered the better buy, and why?

Accepted Answer

A)   A because it offers an expected excess return of 1.2%.
B)   B because it offers an expected excess return of 1.8%.
C)   A because it offers an expected excess return of 2.2%.
D)   B because it offers an expected return of 14%.
E)   B because it has a higher beta.

Question 13

The capital asset pricing model assumes

Accepted Answer

A)   all investors are fully informed.
B)   all investors are rational.
C)   all investors are mean-variance optimizers.
D)   taxes are an important consideration.
E)   all investors are fully informed, are rational, and are mean-variance optimizers.

Question 14

The capital asset pricing model assumes

Accepted Answer

A)   all investors are price takers.
B)   all investors have the same holding period.
C)   investors have homogeneous expectations.
D)   all investors are price takers and have the same holding period.
E)   all investors are price takers, have the same holding period, and have homogeneous expectations.

Question 15

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.

Question 16

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)   0.80.

Question 17

According to the Capital Asset Pricing Model (CAPM) , a security with a

Accepted Answer

A)   positive alpha is considered overpriced.
B)   zero alpha is considered to be a good buy.
C)   negative alpha is considered to be a good buy.
D)   positive alpha is considered to be underpriced.

Exam 9: The Capital Asset Pricing Model

According to the Capital Asset Pricing Model (CAPM) , a well diversified portfolio's rate of return is a function Of

Correct Answer
verified

Your opinion is that Boeing has an expected rate of return of 0.0952. 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
verified

The capital asset pricing model assumes

Correct Answer
verified

In equilibrium, the marginal price of risk for a risky security must be

Correct Answer
verified

According to the Capital Asset Pricing Model (CAPM) , a security with a

Correct Answer
verified

The market portfolio has a beta of

Correct Answer
verified

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
verified

Studies of liquidity spreads in security markets have shown that

Correct Answer
verified

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
verified

An underpriced security will plot

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
verified

A security has an expected rate of return of 0.13 and a beta of 2.1. The market expected rate of return is 0.09, and the risk-free rate is 0.045. The alpha of the stock is

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
verified

Correct Answer
verified

The expected return-beta relationship of the CAPM is graphically represented by

Correct Answer
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The capital asset pricing model assumes

Correct Answer
verified

Exam 9: The Capital Asset Pricing Model

According to the Capital Asset Pricing Model (CAPM) , a well diversified portfolio's rate of return is a function Of

Correct AnswerverifiedShow Answer

Your opinion is that Boeing has an expected rate of return of 0.0952. 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

The capital asset pricing model assumes

Correct AnswerverifiedShow Answer

In equilibrium, the marginal price of risk for a risky security must be

Correct AnswerverifiedShow Answer

According to the Capital Asset Pricing Model (CAPM) , a security with a

Correct AnswerverifiedShow Answer

The market portfolio has a beta of

Correct AnswerverifiedShow Answer

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

Studies of liquidity spreads in security markets have shown that

Correct AnswerverifiedShow Answer

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

An underpriced security will plot

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

A security has an expected rate of return of 0.13 and a beta of 2.1. The market expected rate of return is 0.09, and the risk-free rate is 0.045. The alpha of the stock is

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 expected return-beta relationship of the CAPM is graphically represented by

Correct AnswerverifiedShow Answer

The capital asset pricing model assumes

Correct AnswerverifiedShow Answer

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