Cornell University
Fall 2009
Economics 3330: Preliminary Examination II
November 9, 2009
1. (12 points)
True/False/Explain
State whether each of the following is true or false and explain your answer.
Please limit
your explanations to no more than two sentences. No credit will be awarded if the
explanation is incorrect.
a. (3 points) Consider a two factor APT model.
Suppose that the expected return on a
portfolio is 10%, that the beta for the first factor is 1 and that the beta for the second
factor is ½.
If the risk premium for the first factor is 4%, then the risk premium on the
second factor cannot also be 4%.
b. (3 points) Even if investors are overconfident, markets may still be efficient.
c. (3 points) “Survivorship bias” may lead to the conclusion that a mutual fund manager
has outperformed the market when the manager has not actually done so.
d. (3 points) The semistrong form of the efficient market hypothesis holds that
accountingbased measures of a company’s valuation should not be related to the price of
a company’s stock.
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 '08
 MBIEKOP
 Economics, Modern portfolio theory, Optimal risky portfolio

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