Chapter 7 Practice Questions

Chapter 7 Practice Questions - Chapter 07 Capital Asset...

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Chapter 07 Capital Asset Pricing and Arbitrage Pricing Theory 1. When all investors analyze securities in the same way and share the same economic view of the world we say they have _____________________. a. Heterogeneous expectations b. Equal risk aversion c. Asymmetric information d. Homogeneous expectations 2. In the context of the capital asset pricing model, the systematic measure of risk is __________. a. Unique risk b. Beta c. Standard deviation of returns d. Variance of returns 3. If enough investors decide to purchase stocks they are likely to drive up stock prices thereby causing _____________ and ____________. a. Expected returns to fall; risk premiums to fall b. Expected returns to rise; risk premiums to fall c. Expected returns to rise; risk premiums to rise d. Expected returns to fall; risk premiums to rise 4. In a well diversified portfolio, __________ risk is negligible. a. Nondiversifiable b. Market c. Systematic d. Unsystematic 5. If all investors become more risk averse the SML will _______________ and stock prices will ________________. a. Shift upward; rise b. Shift downward; fall c. Have the same intercept with a steeper slope; fall d. Have the same intercept with a flatter slope; rise 6. According to the capital asset pricing model, a security with a __________. a. Negative alpha is considered a good buy
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Chapter 7 Practice Questions - Chapter 07 Capital Asset...

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