Question 1

The graph of the relationship between expected return and beta in the CAPM context is called the ________.

Accepted Answer

A)   CML
B)   CAL
C)   SML
D)   SCLE) B) and D)
F) None of the above

Question 2

Consider the CAPM. The risk-free rate is 5%, and the expected return on the market is 15%. What is the beta on a stock with an expected return of 17%?

Accepted Answer

A)   .5
B)   .7
C)   1
D)   1.2E) B) and C)
F) A) and C)

Question 3

Arbitrage is ________.

Accepted Answer

A)   an example of the law of one price
B)   the creation of riskless profits made possible by relative mispricing among securities
C)   a common opportunity in modern markets
D)   an example of a risky trading strategy based on market forecastingE) None of the above
F) A) and B)

Question 4

What is the beta for a portfolio with an expected return of 12.5%?

Accepted Answer

A)   0
B)   1
C)   1.5
D)   2E) A) and D)
F) None of the above

Question 5

An adjusted beta will be ________ than the unadjusted beta.

Accepted Answer

A)   lower
B)   higher
C)   closer to 1
D)   closer to 0E) B) and C)
F) None of the above

Question 6

The arbitrage pricing theory was developed by ________.

Accepted Answer

A)   Henry Markowitz
B)   Stephen Ross
C)   William Sharpe
D)   Eugene FamaE) All of the above
F) A) and D)

Question 7

An important characteristic of market equilibrium is ________.

Accepted Answer

A)   the presence of many opportunities for creating zero-investment portfolios
B)   all investors exhibit the same degree of risk aversion
C)   the absence of arbitrage opportunities
D)   the lack of liquidity in the marketE) A) and B)
F) None of the above

Question 8

Empirical results estimated from historical data indicate that betas ________.

Accepted Answer

A)   are always close to zero
B)   are constant over time
C)   of all securities are always between zero and 1
D)   seem to regress toward 1 over timeE) A) and C)
F) B) and C)

Question 9

Consider the single factor APT. Portfolio A has a beta of .2 and an expected return of 13%. Portfolio B has a beta of .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 ________.

Accepted Answer

A)   A; A
B)   A; B
C)   B; A
D)   B; BE) C) and D)
F) A) and B)

Exam 7: Capital Asset Pricing and Arbitrage Pricing Theory

What is the beta for a portfolio with an expected return of 12.5%?

Correct Answer
verified

The arbitrage pricing theory was developed by ________.

Correct Answer
verified

An important characteristic of market equilibrium is ________.

Correct Answer
verified

The graph of the relationship between expected return and beta in the CAPM context is called the ________.

Correct Answer
verified

An adjusted beta will be ________ than the unadjusted beta.

Correct Answer
verified

Correct Answer
verified

Arbitrage is ________.

Correct Answer
verified

Empirical results estimated from historical data indicate that betas ________.

Correct Answer
verified

Consider the CAPM. The risk-free rate is 5%, and the expected return on the market is 15%. What is the beta on a stock with an expected return of 17%?

Correct Answer
verified

Exam 7: Capital Asset Pricing and Arbitrage Pricing Theory

What is the beta for a portfolio with an expected return of 12.5%?

Correct AnswerverifiedShow Answer

The arbitrage pricing theory was developed by ________.

Correct AnswerverifiedShow Answer

An important characteristic of market equilibrium is ________.

Correct AnswerverifiedShow Answer

The graph of the relationship between expected return and beta in the CAPM context is called the ________.

Correct AnswerverifiedShow Answer

An adjusted beta will be ________ than the unadjusted beta.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Arbitrage is ________.

Correct AnswerverifiedShow Answer

Empirical results estimated from historical data indicate that betas ________.

Correct AnswerverifiedShow Answer

Consider the CAPM. The risk-free rate is 5%, and the expected return on the market is 15%. What is the beta on a stock with an expected return of 17%?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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