Question 1

According to the Capital Asset Pricing Model (CAPM) , the expected rate of return on any security is equal to

Accepted Answer

A)  Rf+  β\betaβ  [E(RM) ].
B)  Rf+ β\betaβ  [E(RM)  -Rf].
C)   β\betaβ  [E(RM)  -Rf].
D)  E(RM)  +Rf. E) A) and D)
F) None of the above

Question 2

In a well-diversified portfolio,

Accepted Answer

A)  market risk is negligible.
B)  systematic risk is negligible.
C)  unsystematic risk is negligible.
D)  nondiversifiable risk is negligible.E) A) and B)
F) None of the above

Question 3

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) A) and C)
F) B) and C)

Question 4

One of the assumptions of the CAPM is that investors exhibit myopic behavior.What does this mean?

Accepted Answer

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 optimizers.
D)  They have the same economic view of the world.E) C) and D)
F) B) and C)

Question 5

What is the expected return of a zero-beta security?

Accepted Answer

A)  The market rate of return
B)  Zero rate of return
C)  A negative rate of return
D)  The risk-free rateE) All of the above
F) A) and D)

Question 6

Which of the following statements about the mutual-fund theorem is true? I)  It is similar to the separation property.
II)  It implies that a passive investment strategy can be efficient.
III)  It implies that efficient portfolios can be formed only through active strategies.
IV)  It means that professional managers have superior security-selection strategies.

Accepted Answer

A)  I and IV
B)  I, II, and IV
C)  I and II
D)  III and IVE) C) and D)
F) B) and C)

Question 7

Your opinion is that CSCO has an expected rate of return of 0.13.It has a beta of 1.3.The risk-free rate is 0.04 and the market expected rate of return is 0.115.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.E) A) and B)
F) A) and C)

Question 8

You invest 50% of your money in security A with a beta of 1.6 and the rest of your money in security B with a beta of 0.7.The beta of the resulting portfolio is

Accepted Answer

A)  1.40.
B)  1.15.
C)  0.36.
D)  1.08.E) All of the above
F) None of the above

Question 9

The risk premium on the market portfolio will be proportional to

Accepted Answer

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 beta.
D)  the average degree of risk aversion of the investor population and the risk of the market portfolio as measured by its variance.E) None of the above
F) A) and D)

Question 10

Capital asset pricing theory asserts that portfolio returns are best explained by

Accepted Answer

A)  economic factors.
B)  specific risk.
C)  systematic risk.
D)  diversification.E) A) and B)
F) A) and C)

Question 11

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.E) A) and D)
F) None of the above

Question 12

An overpriced 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) A) and D)
F) A) and C)

Question 13

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.E) A) and C)
F) None of the above

Question 14

Your opinion is that Boeing has an expected rate of return of 0.08.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.E) A) and B)
F) A) and C)

Question 15

The risk-free rate and the expected market rate of return are 0.056 and 0.125, respectively.According to the capital asset pricing model (CAPM) , the expected rate of return on a security with a beta of 1.25 is equal to

Accepted Answer

A)  0.142.
B)  0.144.
C)  0.153.
D)  0.134.E) A) and B)
F) B) and C)

Question 16

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

Accepted Answer

A)  beta risk.
B)  unsystematic risk.
C)  unique risk.
D)  reinvestment risk.E) All of the above
F) C) and D)

Question 17

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

Question 18

The market risk, beta, of a security is equal to

Accepted Answer

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 deviation of the market's returns.
C)  the variance of the security's returns divided by the covariance between the security and market returns.
D)  the variance of the security's returns divided by the variance of the market's returns.E) B) and C)
F) None of the above

Question 19

The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively.According to the capital asset pricing model (CAPM) , the expected rate of return on security X with a beta of 1.2 is equal to

Accepted Answer

A)  0.06.
B)  0.144.
C)  0.12.
D)  0.132.E) C) and D)
F) A) and B)

Question 20

The market portfolio has a beta of

Accepted Answer

A)  0.
B)  1.
C)  -1.
D)  0.5.E) All of the above
F) B) and C)

Exam 9: The Capital Asset Pricing Model

Correct Answer
verified

Your opinion is that Boeing has an expected rate of return of 0.08.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 market risk, beta, of a security is equal to

Correct Answer
verified

You invest 50% of your money in security A with a beta of 1.6 and the rest of your money in security B with a beta of 0.7.The beta of the resulting portfolio is

Correct Answer
verified

What is the expected return of a zero-beta security?

Correct Answer
verified

Your opinion is that CSCO has an expected rate of return of 0.13.It has a beta of 1.3.The risk-free rate is 0.04 and the market expected rate of return is 0.115.According to the Capital Asset Pricing Model, this security is

Correct Answer
verified

Capital asset pricing theory asserts that portfolio returns are best explained by

Correct Answer
verified

One of the assumptions of the CAPM is that investors exhibit myopic behavior.What does this mean?

Correct Answer
verified

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

Correct Answer
verified

According to the Capital Asset Pricing Model (CAPM) , the expected rate of return on any security is equal to

Correct Answer
verified

The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively.According to the capital asset pricing model (CAPM) , the expected rate of return on security X with a beta of 1.2 is equal to

Correct Answer
verified

The market portfolio has a beta of

Correct Answer
verified

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

Correct Answer
verified

An overpriced security will plot

Correct Answer
verified

In a well-diversified portfolio,

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

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

The risk premium on the market portfolio will be proportional to

Correct Answer
verified

The risk-free rate and the expected market rate of return are 0.056 and 0.125, respectively.According to the capital asset pricing model (CAPM) , the expected rate of return on a security with a beta of 1.25 is equal to

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

Exam 9: The Capital Asset Pricing Model

Correct AnswerverifiedShow Answer

Your opinion is that Boeing has an expected rate of return of 0.08.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 market risk, beta, of a security is equal to

Correct AnswerverifiedShow Answer

You invest 50% of your money in security A with a beta of 1.6 and the rest of your money in security B with a beta of 0.7.The beta of the resulting portfolio is

Correct AnswerverifiedShow Answer

What is the expected return of a zero-beta security?

Correct AnswerverifiedShow Answer

Your opinion is that CSCO has an expected rate of return of 0.13.It has a beta of 1.3.The risk-free rate is 0.04 and the market expected rate of return is 0.115.According to the Capital Asset Pricing Model, this security is

Correct AnswerverifiedShow Answer

Capital asset pricing theory asserts that portfolio returns are best explained by

Correct AnswerverifiedShow Answer

One of the assumptions of the CAPM is that investors exhibit myopic behavior.What does this mean?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the Capital Asset Pricing Model (CAPM) , the expected rate of return on any security is equal to

Correct AnswerverifiedShow Answer

The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively.According to the capital asset pricing model (CAPM) , the expected rate of return on security X with a beta of 1.2 is equal to

Correct AnswerverifiedShow Answer

The market portfolio has a beta of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An overpriced security will plot

Correct AnswerverifiedShow Answer

In a well-diversified portfolio,

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

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

The risk premium on the market portfolio will be proportional to

Correct AnswerverifiedShow Answer

The risk-free rate and the expected market rate of return are 0.056 and 0.125, respectively.According to the capital asset pricing model (CAPM) , the expected rate of return on a security with a beta of 1.25 is equal to

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

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