281. The realized return
A. is what an investor actually obtains from his investment at the end of the investment period.
B. is what an investor expects to obtain from his investment at the end of the investment period.
C. is equivalent to risk free rate of return.
D. is what a creditor actually obtains from his investment at the end of the investment period.
Answer
A. is what an investor actually obtains from his investment at the end of the investment period.
282. Possible variation of the actual return from the expected return is termed as ?
A. Adjusted retruns
B. Risk
C. Probability
D. Systematic return
Answer
B. Risk
283. Market risk is also called:
A. systematic risk and unique risk.
B. nondiversifiable risk and systematic risk.
C. unique risk and nondiversifiable risk.
D. systematic risk and diversifiable risk.
Answer
B. nondiversifiable risk and systematic risk.
284. Suppose you estimate the characteristic line for Stock X. You find that the standard deviation of X’s error term is 7%, X’s beta is 1.4, and the standard deviation of the market is 12%. What is the total standard deviation for Stock X?
A. 18.2%
B. 19.0%
C. 23.8%
D. 30.5%
Answer
A. 18.2%
285. The risk-free rate for the next year is 3%, and the market risk premium is expected to be 10%. The beta of Acme’s stock is 1.5. If you believe that Acme’s stock will actually return 18.2% over the next year, then according to the CAPM you should:
A. be indifferent between buying and selling the stock.
B. buy the stock because it is under priced.
C. sell the stock because it is overpric
Answer
B. buy the stock because it is under priced.
286. Stock A has a beta of 1.0 and very high unique risk. If the expected return on the market is 20%, then according to the CAPM the expected return on Stock A will be:
A. the answer cannot be found without knowing Stock A’s correlation or covariance with the market.
B. more than 20% because of Stock A’s very high unique risk.
C. exactly 20%.
D. the answer cannot be found without knowing the risk-free rate of interest.
Answer
C. exactly 20%.
287. The beta of the market portfolio is:
A. 0.5
B. –1.0
D. 1.0
Answer
D. 1.0
288. If an asset’s expected return plots above the security market line, the asset is:
A. fairly priced (if it has an unusually large amount of unique risk).
B. under priced.
C. overpric
Answer
B. under priced.
289. Which one of the following is true?
A. Alpha is the slope of the characteristic line.
B. Beta is the slope of the capital market line.
C. Beta is the slope of the security market line.
D. Alpha is the slope of the opportunity line.
Answer
D. Alpha is the slope of the opportunity line.
290. The market risk premium is 15% and the risk-free rate is 5%. The beta of Asset D is 0.2. What is Asset D’s expected return under the CAPM?
A. 8%
B. 20%
C. 7%
D. 30%
Answer
A. 8%
291. The market risk premium is the slope of:
A. the efficient frontier.
B. the capital market line.
C. the security market line.
D. the characteristic line.
Answer
C. the security market line.
292. According to the CAPM, overpriced securities have:
A. negative betas.
B. positive alphas.
C. negative alphas.
D. zero betas.
Answer
C. negative alphas.
293. The beta of the risk-free asset is:
A. 0.5
B. 0
C. 2.0
D. 1.0
Answer
B. 0
294. Capital asset pricing theory asserts that portfolio returns are best explained by:
A. specific risk.
B. systematic risk.
C. economic factors.
D. diversification.
Answer
B. systematic risk.
295. The market portfolio has a beta of:
A. 0.0
B. –1.0
C. 1.0
D. 0.5
Answer
C. 1.0
296. According to security market line, the expected return of any security is a function of:
A. diversifiable risk.
B. total risk.
C. systematic risk.
D. unsystematic risk.
Answer
C. systematic risk.
297. According to the capital market line, the expected return of any efficient portfolio is afunction of:
A. unique risk.
B. systematic risk.
C. unsystematic risk.
D. total risk.
Answer
D. total risk.
298. Which one of the following is the exponential factor for a 100-day Exponential Moving Average?
A. 0.01
B. 0.2
C. 0.02
D. 0.002
Answer
C. 0.02
299. Which of the following patterns is the most reliable and widely used for indicating trend reversal?
A. Stochastics
B. Moving Averages
C. Rectangles
D. Head and Shoulders
Answer
D. Head and Shoulders
300. 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.
Answer
B. beta.
301. According to the Capital Asset Pricing Model (CAPM) a well diversified portfolio’srate of return is a function of
A. market risk
B. unsystematic risk
C. unique risk.
D. reinvestment risk.
Answer
A. market risk
302. 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
A. 0.06.
B. 0.144.
C. 0.12.
D. 0.132
Answer
D. 0.132
303. 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
A. 0.142
B. 0.144.
C. 0.153.
D. 0.134
Answer
A. 0.142
304. 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.
D. The CML always has a positive slope.
Answer
C. The CML is also called the security market line.
305. Which statement is 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 always has a positive slope.
D. A, B, and C are true.
Answer
D. A, B, and C are true.
306. According to the Capital Asset Pricing Model (CAPM), the expected rate of return on any security is equal to
A. Rf + ß [E(RM)].
B. Rf + ß [E(RM) – Rf].
C. ß [E(RM) – Rf].
D. E(RM) + Rf.
Answer
B. Rf + ß [E(RM) – Rf].
307. 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.
Answer
B. have zero alphas.
308. In a well diversified portfolio
A. market risk is negligible.
B. systematic risk is negligible.
C. unsystematic risk is negligible.
D. Non diversifiable risk is negligible.
Answer
C. unsystematic risk is negligible.
309. The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If you expect CAT with a beta of 1.0 to offer a rate of return of 11 percent, you should
A. buy stock X because it is overpriced.
B. sell short stock X because it is overpriced.
C. sell stock short X because it is underpric
Answer
D.
310. The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If you expect CAT with a beta of 1.0 to offer a rate of return of 13 percent, you should
A. buy stock X because it is overpriced.
B. sell short stock X because it is overpriced.
C. sell stock short X because it is underpric
Answer
D.
311. You invest 55% of your money in security A with a beta of 1.4 and the rest of your money in security B with a beta of 0.9. The beta of the resulting portfolio is
A. 1.466
B. 1.157
C. 0.968
D. 1.175
Answer
D. 1.175
