Sample Exam 2 Questions from LaTech

Sample Exam 2 Questions from LaTech - Chapter 7 Questions....

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Page 1 Chapter 7 Questions. Please note that I have not verified all the answers yet. If you believe any of them are wrong, please let me know. 1. An index fund that holds the market portfolio will need to rebalance its portfolio when _______. A) prices change B) expected returns change C) a stock split occurs D) none of the above 2. Consider the CAPM. The risk-free rate is 5% and the expected return on the market is 15%. What is the beta on a stock with an expected return of 12%? A) .5 B) .7 C) 1.2 D) 1.4 3. Stocks A, B, C and D have betas of 1.5, 0.4, 0.9 and 1.7 respectively. What is the beta of an equally weighted portfolio of A, B and C? A) .25 B) .93 C) 1.00 D) 1.13 4. According to the capital asset pricing model, fairly priced securities have __________. A) negative betas B) positive alphas C) positive betas D) zero alphas 5. The portion of a security's expected return that is not explained by market risk is usually called ____________. A) alpha B) beta C) epsilon D) None of the above 6. According to the capital asset pricing model, __________. A) all securities must lie on the capital market line B) all securities must lie on the security market line C) underpriced securities lie below the security market line D) overpriced securities lie above the security market line
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Page 2 7. Consider the single factor APT. Portfolio A has a beta of 1.3 and an expected return of 21%. Portfolio B has a beta of 0.7 and an expected return of 17%. The risk-free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio __________. A) A, A B) A, B C) B, A D) B, B 8. The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of .8 to offer a rate of return of 12 percent, then you should __________. A) buy stock X because it is overpriced B) buy stock X because it is underpriced C) sell short stock X because it is overpriced D) sell short stock X because it is underpriced 9. The risk-free rate and the expected market rate of return are 5% and 15% respectively. According to the capital asset pricing model, the expected rate of return on security X with a beta of 1.2 is equal to __________. A) 12% B) 17% C) 18% D) 23% 10. Liquidity is a risk factor that ____. A) has yet to be accurately measured and incorporated in portfolio management B) is unaffected by trading mechanisms on various stock exchanges C) has no effect on the market value of an asset D) none of the above 11. The most significant conceptual difference between the arbitrage pricing theory (APT) and the capital asset pricing model (CAPM) is that the CAPM ______________. A) places less emphasis on market risk
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Sample Exam 2 Questions from LaTech - Chapter 7 Questions....

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