Question 1

As a financial analyst,you are tasked with evaluating a capital budgeting project.You were instructed to use the IRR method and you need to determine an appropriate hurdle rate.The risk-free rate is 4 percent and the expected market rate of return is 11 percent.Your company has a beta of 0.67 and the project that you are evaluating is considered to have risk equal to the average project that the company has accepted in the past.According to CAPM,the appropriate hurdle rate would be ______%.

Accepted Answer

A)  4
B)  8.69
C)  15
D)  11
E)  0.75F) A) and B)
G) A) and E)

Question 2

Discuss the assumptions of the capital asset pricing model,and how these assumptions relate to the "real world" investment decision process.

Accepted Answer

The assumptions are:
(a) The market is c...

Question 3

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

Accepted Answer

A)  systematic risk.
B)  unsystematic risk.
C)  unique risk.
D)  reinvestment risk.
E)  none of the above.F) C) and E)
G) A) and D)

Question 4

The capital asset pricing model assumes

Accepted Answer

A)  all investors are fully informed.
B)  all investors are rational.
C)  all investors are mean-variance optimizers.
D)  taxes are an important consideration.
E)  A,B and C are all true.F) A) and C)
G) A) and E)

Question 5

As a financial analyst,you are tasked with evaluating a capital budgeting project.You were instructed to use the IRR method and you need to determine an appropriate hurdle rate.The risk-free rate is 5 percent and the expected market rate of return is 10 percent.Your company has a beta of 0.67 and the project that you are evaluating is considered to have risk equal to the average project that the company has accepted in the past.According to CAPM,the appropriate hurdle rate would be ______%.

Accepted Answer

A)  10
B)  5
C)  8.35
D)  28.35
E)  0.67F) None of the above
G) B) and C)

Question 6

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)  none of the above.F) A) and B)
G) A) and C)

Question 7

The risk-free rate is 5 percent.The expected market rate of return is 11 percent.If you expect stock X with a beta of 2.1 to offer a rate of return of 15 percent,you should

Accepted Answer

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 underpriced.
D)  buy stock X because it is underpriced.
E)  none of the above,as the stock is fairly priced.F) A) and D)
G) D) and E)

Question 8

Given the following two stocks A and B   Security  Expected rate of return  Beta ‾ A 0.121.2 B 0.141.8\begin{array} { | l | l | l | } \hline 	ext { Security } & 	ext { Expected rate of return } & \underline { 	ext { Beta } } \\hline 	ext { A } & 0.12 & 1.2 \\hline 	ext { B } & 0.14 & 1.8 \\hline\end{array} Security  A  B ​ Expected rate of return 0.120.14​ Beta ​1.21.8​​  If the expected market rate of return is 0.09 and the risk-free rate is 0.05,which security would be considered the better buy and why?

Accepted Answer

A)  A because it offers an expected excess return of 1.2%.
B)  B because it offers an expected excess return of 1.8%.
C)  A because it offers an expected excess return of 2.2%.
D)  B because it offers an expected return of 14%.
E)  B because it has a higher beta. F) All of the above
G) B) and D)

Question 9

Security A has an expected rate of return of 0.10 and a beta of 1.3.The market expected rate of return is 0.10 and the risk-free rate is 0.04.The alpha of the stock is

Accepted Answer

A)  1.7%.
B)  -1.8%.
C)  8.3%.
D)  5.5%.
E)  none of the above.F) B) and E)
G) None of the above

Question 10

The market portfolio has a beta of

Accepted Answer

A)  0.
B)  1.
C)  -1.
D)  0.5.
E)  none of the aboveF) A) and E)
G) A) and C)

Question 11

Your personal opinion is that a security has an expected rate of return of 0.11.It has a beta of 1.5.The risk-free rate is 0.05 and the market expected rate of return is 0.09.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)  none of the above.F) B) and D)
G) B) and C)

Question 12

In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is

Accepted Answer

A)  unique risk.
B)  systematic risk.
C)  standard deviation of returns.
D)  variance of returns.
E)  none of the above.F) A) and B)
G) A) and C)

Question 13

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)  none of the above.F) C) and D)
G) D) and E)

Question 14

A "fairly priced" asset lies

Accepted Answer

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.F) A) and B)
G) A) and D)

Question 15

Empirical results regarding betas estimated from historical data indicate that

Accepted Answer

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)  betas are always positive.F) C) and E)
G) D) and E)

Question 16

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)  They pay no taxes or transactions costs.F) A) and B)
G) B) and E)

Question 17

In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is

Accepted Answer

A)  unique risk.
B)  systematic risk.
C)  standard deviation of returns.
D)  variance of returns.
E)  none of the above.F) All of the above
G) B) and C)

Question 18

According to the Capital Asset Pricing Model (CAPM) ,overpriced securities

Accepted Answer

A)  have positive betas.
B)  have zero alphas.
C)  have negative alphas.
D)  have positive alphas.
E)  none of the above.F) A) and B)
G) D) and E)

Question 19

Which statement is true regarding the Capital Market Line (CML) ?

Accepted Answer

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.
E)  A,B,and D are true.F) All of the above
G) A) and D)

Question 20

Which statement is not true regarding the market portfolio?

Accepted Answer

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 tangency point between the capital market line and the indifference curve.
E)  All of the above are true.F) None of the above
G) C) and D)

Exam 12: Behavioral Finance and Technical Analysis

Correct Answer
verified

Which statement is true regarding the Capital Market Line (CML) ?

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

Correct Answer
verified

According to the Capital Asset Pricing Model (CAPM) ,overpriced securities

Correct Answer
verified

The market portfolio has a beta of

Correct Answer
verified

The risk-free rate is 5 percent.The expected market rate of return is 11 percent.If you expect stock X with a beta of 2.1 to offer a rate of return of 15 percent,you should

Correct Answer
verified

Security A has an expected rate of return of 0.10 and a beta of 1.3.The market expected rate of return is 0.10 and the risk-free rate is 0.04.The alpha of the stock is

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

In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is

Correct Answer
verified

In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is

Correct Answer
verified

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

Correct Answer
verified

Empirical results regarding betas estimated from historical data indicate that

Correct Answer
verified

Which statement is not true regarding the market portfolio?

Correct Answer
verified

The capital asset pricing model assumes

Correct Answer
verified

Correct Answer
verified

A "fairly priced" asset lies

Correct Answer
verified

Your personal opinion is that a security has an expected rate of return of 0.11.It has a beta of 1.5.The risk-free rate is 0.05 and the market expected rate of return is 0.09.According to the Capital Asset Pricing Model,this security is

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

Discuss the assumptions of the capital asset pricing model,and how these assumptions relate to the "real world" investment decision process.

Correct Answer
verified
The assumptions are:
(a) The market is c...
View Answer

Exam 12: Behavioral Finance and Technical Analysis

Correct AnswerverifiedShow Answer

Which statement is true regarding the Capital Market Line (CML) ?

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

Correct AnswerverifiedShow Answer

According to the Capital Asset Pricing Model (CAPM) ,overpriced securities

Correct AnswerverifiedShow Answer

The market portfolio has a beta of

Correct AnswerverifiedShow Answer

The risk-free rate is 5 percent.The expected market rate of return is 11 percent.If you expect stock X with a beta of 2.1 to offer a rate of return of 15 percent,you should

Correct AnswerverifiedShow Answer

Security A has an expected rate of return of 0.10 and a beta of 1.3.The market expected rate of return is 0.10 and the risk-free rate is 0.04.The alpha of the stock is

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

In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is

Correct AnswerverifiedShow Answer

In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Empirical results regarding betas estimated from historical data indicate that

Correct AnswerverifiedShow Answer

Which statement is not true regarding the market portfolio?

Correct AnswerverifiedShow Answer

The capital asset pricing model assumes

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A "fairly priced" asset lies

Correct AnswerverifiedShow Answer

Your personal opinion is that a security has an expected rate of return of 0.11.It has a beta of 1.5.The risk-free rate is 0.05 and the market expected rate of return is 0.09.According to the Capital Asset Pricing Model,this security is

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

Discuss the assumptions of the capital asset pricing model,and how these assumptions relate to the "real world" investment decision process.

Correct AnswerverifiedThe assumptions are:(a) The market is c...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The assumptions are:
(a) The market is c...
View Answer