Chapter 10 - ch10 Key 1. _ a relationship between expected...

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ch10 Key 1. ___________ a relationship between expected return and risk. A. APT stipulates B. CAPM stipulates C. Both CAPM and APT stipulate D. Neither CAPM nor APT stipulate E. No pricing model has found Both models attempt to explain asset pricing based on risk/return relationships. Bodie - Chapter 10 #1 Difficulty: Easy 2. Which pricing model provides no guidance concerning the determination of the risk premium on factor portfolios? A. The CAPM B. The multifactor APT C. Both the CAPM and the multifactor APT D. Neither the CAPM nor the multifactor APT E. None of the above is a true statement. The multifactor APT provides no guidance as to the determination of the risk premium on the various factors. The CAPM assumes that the excess market return over the risk-free rate is the market premium in the single factor CAPM. Bodie - Chapter 10 #2 Difficulty: Moderate 3. An arbitrage opportunity exists if an investor can construct a __________ investment portfolio that will yield a sure profit. A. positive B. negative C. zero D. all of the above E. none of the above If the investor can construct a portfolio without the use of the investor's own funds and the portfolio yields a positive profit, arbitrage opportunities exist. Bodie - Chapter 10 #3 Difficulty: Easy 1
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4. The APT was developed in 1976 by ____________. A. Lintner B. Modigliani and Miller C. Ross D. Sharpe E. none of the above Ross developed this model in 1976. Bodie - Chapter 10 #4 Difficulty: Easy 5. A _________ portfolio is a well-diversified portfolio constructed to have a beta of 1 on one of the factors and a beta of 0 on any other factor. A. factor B. market C. index D. A and B E. A, B, and C A factor model portfolio has a beta of 1 one factor, with zero betas on other factors. Bodie - Chapter 10 #5 Difficulty: Easy 6. The exploitation of security mispricing in such a way that risk-free economic profits may be earned is called ___________. A. arbitrage B. capital asset pricing C. factoring D. fundamental analysis E. none of the above Arbitrage is earning of positive profits with a zero (risk-free) investment. Bodie - Chapter 10 #6 Difficulty: Easy 7. In developing the APT, Ross assumed that uncertainty in asset returns was a result of A. a common macroeconomic factor B. firm-specific factors C. pricing error D. neither A nor B E. both A and B Total risk (uncertainty) is assumed to be composed of both macroeconomic and firm-specific factors. Bodie - Chapter 10 #7 Difficulty: Moderate 2
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8. The ____________ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _____________ implies that this relationship holds for all but perhaps a small number of securities. A.
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This note was uploaded on 12/07/2011 for the course FINANCE 352 taught by Professor Rahman during the Spring '11 term at Portland State.

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Chapter 10 - ch10 Key 1. _ a relationship between expected...

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