TIF_ch10 - Test Bank Chapter 10: RISK AND RETURN: ASSET...

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Test Bank Chapter 10: RISK AND RETURN: ASSET PRICING MODEL EFS I. True or False (Definitions and Concepts) F 1. Because a required return is an opportunity cost, sometimes we cannot use comparable investments to estimate a required return. (FALSE: Should be can use instead of cannot use.) T 2. Beta measures the asset's incremental contribution to the risk of a diversified portfolio. T 3. Diversifiable risk (or systematic risk) is risk that can be eliminated by diversification. F 4. Standard deviation can be expressed either in terms of Corr( j,M ) or in terms of Cov( j,M ) where j is any asset and M is the market portfolio. (FALSE: Should be beta instead of standard deviation.) T 5. The CAPM shows how an individual asset contributes to the risk of an investor's total portfolio. F 6. A stock with a beta less than 1.0 will rise or fall more than the market. (FALSE: Should be greater instead of less.) F 7. When a negative-beta asset is added to the market portfolio, it actually increases the market portfolio’s standard deviation. (FALSE: Should be decreases instead of increases.) T 8. Selling short involves borrowing a security and selling it with the expectation of buying it back later at a lower price (to make a profit). F 9. Nondiversified investors will be taking less risk than diversified investors. (FALSE: Should be more instead of less.) T 10. Nondiversified investors who are going to purchase shares must pay the higher (diversified) price. T 11. The CAPM tends to understate the required return for common stocks of firms that are small or are highly leverage. F 12. Essentially, the CAPM says an asset's expected return depends on a single factor: the market portfolio's expected variance. (FALSE: Should be return instead of variance.) F 13. The CAPM relies on the concept of arbitrage (FALSE: Should be APT instead of CAPM.) T 14. Although the APT takes the Principle of Capital Market Efficiency as its starting point, it does not attempt to specify any particular set of determinants on the basis of conceptual arguments. T 15. In reality, the world capital markets are not fully integrated.
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II. Multiple Choice (Definitions and Concepts) d 16. Certain countries have restrictions. And, in practice, U.S. investors have not invested very much internationally. Possible factors include . a. problems obtaining foreign financial information. b. foreign tax considerations. c. costs of converting currencies. d. all of these b 17. Certain countries have restrictions. And, in practice, U.S. investors have not invested very much internationally. Possible factors include . a. lower transaction costs. b. expropriation risk. c. firm-specific risk. d. all of these c 18. Certain countries have restrictions. And, in practice, U.S. investors have not invested very much internationally. Possible factors include . a.
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This note was uploaded on 01/21/2011 for the course ACC 452 taught by Professor Mr.cula during the Spring '10 term at Abraham Baldwin Agricultural College.

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TIF_ch10 - Test Bank Chapter 10: RISK AND RETURN: ASSET...

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