Multiple Choice Questions chapt 11

Multiple Choice Questions

1. ___________ a relationship between expected return and risk.

A) APT stipulates

B) CAPM stipulates

C) Both CAPM and APT stipulate

D) Neither CAPM nor APT stipulate

E) No pricing model has found

Answer: C Difficulty: Easy

Rationale: Both models attempt to explain asset pricing based on risk/return

relationships.

2. Which pricing model provides no guidance concerning the determination of the risk

premium on factor portfolios?

A) The CAPM

B) The multifactor APT

C) Both the CAPM and the multifactor APT

D) Neither the CAPM nor the multifactor APT

E) None of the above is a true statement.

Answer: B Difficulty: Moderate

Rationale: The multifactor APT provides no guidance as to the determination of the

risk premium on the various factors. The CAPM assumes that the excess market

return over the risk-free rate is the market premium in the single factor CAPM.

3. An arbitrage opportunity exists if an investor can construct a __________ investment

portfolio that will yield a sure profit.

A) positive

B) negative

C) zero

D) all of the above

E) none of the above

Answer: C Difficulty: Easy

Rationale: If the investor can construct a portfolio without the use of the investor's

own funds and the portfolio yields a positive profit, arbitrage opportunities exist.

A) Lintner B) Modigliani and Miller C) Ross D) Sharpe E) none of the above Answer: C Difficulty: Easy Rationale: Ross developed this model in 1976. 5. A _________ portfolio is a well-persified portfolio constructed to have a beta of 1 on one of the factors and a beta of 0 on any other factor. A) factor B) market C) index D) A and B E) A, B, and C Answer: A Difficulty: Easy Rationale: A factor model portfolio has a beta of 1 one factor, with zero betas on other factors. 6. The exploitation of security mispricing in such a way that risk-free economic profits may be earned is called ___________. A) arbitrage B) capital asset pricing C) factoring D) fundamental analysis E) none of the above Answer: A Difficulty: Easy Rationale: Arbitrage is earning of positive profits with a zero (risk-free) investment.

A) a common macroeconomic factor. B) firm-specific factors. C) pricing error. D) neither A nor B E) both A and B Answer: E Difficulty: Moderate Rationale: Total risk (uncertainty) is assumed to be composed of both macroeconomic and firm-specific factors. 8. The ____________ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _____________ implies that this relationship holds for all but perhaps a small number of securities. A) APT, CAPM B) APT, OPM C) CAPM, APT D) CAPM, OPM E) none of the above Answer: C Difficulty: Moderate Rationale: The CAPM is an asset-pricing model based on the risk/return relationship of all assets. The APT implies that this relationship holds for all well-persified portfolios, and for all but perhaps a few inpidual securities. 9. Consider a single factor APT. Portfolio A has a beta of 1.0 and an expected return of

16%. Portfolio B has a beta of 0.8 and an expected return of 12%. The risk-free rate of return is 6%. If you wanted to take advantage of an arbitrage opportunity, you

should take a short position in portfolio __________ and a long position in portfolio _______.

A) A, A

B) A, B

C) B, A

D) B, B

E) A, the riskless asset

Answer: C Difficulty: Moderate

Rationale: A: 16% = 1.0F + 6%; F = 10%; B: 12% = 0.8F + 6%: F = 7.5%; thus, short

B and take a long position in A.

10. Consider the single factor APT. Portfolio A has a beta of 0.2 and an expected return

of 13%. Portfolio B has a beta of 0.4 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 _________.

A) A, A

B) A, B

C) B, A

D) B, B

E) none of the above

Answer: C Difficulty: Moderate

Rationale: A: 13% = 10% + 0.2F; F = 15%; B: 15% = 10% + 0.4F; F = 12.5%;

therefore, short B and take a long position in A.

11. Consider the one-factor APT. The variance of returns on the factor portfolio is 6%.

The beta of a well-persified portfolio on the factor is 1.1. The variance of returns on the well-persified portfolio is approximately __________.

A) 3.6%

B) 6.0%

C) 7.3%

D) 10.1%

E) none of the above

Answer: C Difficulty: Moderate

Rationale: s2P = (1.1)2(6%) = 7.26%.

12. Consider the one-factor APT. The standard deviation of returns on a well-persified

portfolio is 18%. The standard deviation on the factor portfolio is 16%. The beta of the well-persified portfolio is approximately __________.

A) 0.80

B) 1.13

C) 1.25

D) 1.56

E) none of the above

Answer: B Difficulty: Moderate

Rationale: (18%)2 = (16%)2 b2; b = 1.125.

13. Consider the single-factor APT. Stocks A and B have expected returns of 15% and

18%, respectively. The risk-free rate of return is 6%. Stock B has a beta of 1.0. If arbitrage opportunities are ruled out, stock A has a beta of __________.

A) 0.67

B) 1.00

C) 1.30

D) 1.69

E) none of the above

Answer: E Difficulty: Moderate

Rationale: A: 15% = 6% + bF; B: 8% = 6% + 1.0F; F = 12%; thus, beta of A = 9/12 =

0.75.

14. Consider the multifactor APT wi …… 此处隐藏：17894字，全部文档内容请下载后查看。喜欢就下载吧 ……