B
In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of risk is
A) unique risk. B) beta. C) standard deviation of returns. D) variance of returns. E) none of the above.
A
According to the Capital Asset Pricing Model (CAPM) a well diversified portfolio's rate of return is a function of
A) market risk B) unsystematic risk C) unique risk. D) reinvestment risk. E) none of the above.
B
The market portfolio has a beta of
A) 0. B) 1. C) -1. D) 0.5. E) none of the above
D
Which statement is not true regarding the market portfolio?
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 ta
C
Which statement is not true regarding the Capital Market Line (CML)?
A) The CML is the line from the risk-free rate through the market portfolio.
B) The CML is the best attainable capital allocation line.
C) The CML is also called the security market line
A
The market risk, beta, of a security is equal to
A) the covariance between the security's return and the market return divided by the variance of the market's returns.
B) the covariance between the security and market returns divided by the standard devia
D
The Security Market Line (SML) is
A) the line that describes the expected return-beta relationship for well-diversified portfolios only.
B) also called the Capital Allocation Line.
C) the line that is tangent to the efficient frontier of all risky assets.
B
According to the Capital Asset Pricing Model (CAPM), fairly priced securities
A) have positive betas.
B) have zero alphas.
C) have negative betas.
D) have positive alphas.
E) none of the above.
D
According to the Capital Asset Pricing Model (CAPM), under priced securities
A) have positive betas.
B) have zero alphas.
C) have negative betas.
D) have positive alphas.
E) none of the above.
C
According to the Capital Asset Pricing Model (CAPM), over priced securities
A) have positive betas.
B) have zero alphas.
C) have negative betas.
D) have positive alphas.
E) none of the above.
D
According to the Capital Asset Pricing Model (CAPM),
A) a security with a positive alpha is considered overpriced.
B) a security with a zero alpha is considered to be a good buy.
C) a security with a negative alpha is considered to be a good buy.
D) a sec
C
In a well diversified portfolio
A) market risk is negligible.
B) systematic risk is negligible.
C) unsystematic risk is negligible.
D) nondiversifiable risk is negligible.
E) none of the above.
C
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
A) the market's volatility.
B) asset i's volatility.
C) the trading costs of s
B
A "fairly priced" asset lies
A) above the security market line.
B) on the security market line.
C) on the capital market line.
D) above the capital market line.
E) below the security market line.
A
The expected return -- beta relationship of the CAPM is graphically represented by
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
C
Which of the following statements about the mutual fund theorem is true?
I) It is similar to the separation property. I
I) It implies that a passive investment strategy can be efficient.
III) It implies that efficient portfolios can be formed only through
E
The CAPM applies to
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.
A
One of the assumptions of the CAPM is that investors exhibit myopic behavior. What does this mean?
A) They plan for one identical holding period.
B) They are price-takers who can't affect market prices through their trades.
C) They are mean-variance optim
D
The amount that an investor allocates to the market portfolio is negatively related to
I) the expected return on the market portfolio.
II) the investor's risk aversion coefficient.
III) the risk-free rate of return.
IV) the variance of the market portfoli
E
The value of the market portfolio equals
A) the sum of the values of all equity securities.
B) the sum of the values of all equity and fixed income securities.
C) the sum the values of all equity, fixed income, and derivative securities.
D) the sum of the
C
If investors do not know their investment horizons for certain
A) the CAPM is no longer valid.
B) the CAPM underlying assumptions are not violated.
C) the implications of the CAPM are not violated as long as investors' liquidity needs are not priced.
D) t
D
The capital asset pricing model assumes
A) all investors are price takers.
B) all investors have the same holding period.
C) investors pay taxes on capital gains.
D) both A and B are true.
E) A, B and C are all true.
A
In equilibrium, the marginal price of risk for a risky security must be
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 m
D
The risk premium on the market portfolio will be proportional to
A) the average degree of risk aversion of the investor population.
B) the risk of the market portfolio as measured by its variance.
C) the risk of the market portfolio as measured by its bet
C
An underpriced security will plot
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
B
Studies of liquidity spreads in security markets have shown that
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 st
A
Research by Jeremy Stein of MIT resolves the dispute over whether beta is a sufficient pricing factor by suggesting that managers should use beta to estimate
A) long-term returns but not short-term returns.
B) short-term returns but not long-term returns.
D
The security market line (SML)
A) can be portrayed graphically as the expected return-beta relationship.
B) can be portrayed graphically as the expected return-standard deviation of market returns relationship.
C) provides a benchmark for evaluation of in
D
The expected return-beta relationship
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 vari
B
Standard deviation and beta both measure risk, but they are different in that
A) beta measures both systematic and unsystematic risk.
B) beta measures only systematic risk while standard deviation is a measure of total risk.
C) beta measures only unsystem
C
According to the CAPM, the risk premium an investor expects to receive on any stock or portfolio increases:
A) directly with alpha.
B) inversely with alpha.
C) directly with beta.
D) inversely with beta.
E) in proportion to its standard deviation.
C
Capital Asset Pricing Theory asserts that portfolio returns are best explained by:
A) economic factors.
B) specific risk.
C) systematic risk.
D) diversification.
E) none of the above.
D
Empirical results regarding betas estimated from historical data indicate that
A) betas are constant over time.
B) betas of all securities are always greater than one.
C) betas are always near zero.
D) betas appear to regress toward one over time.
E) beta