FIN
Topic 10 The Standard Capital Asset Pricing Model.pdf

The maximum attainable expected return results from a

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the maximum attainable expected return results from a 100% allocation to the frontier portfolio and a 0% allocation to the risk-free asset. all portfolios on the Markowitz efficient frontier are dominated in terms of risk and return by a portfolio on the CML. a 100% allocation to the risk-free asset results in a portfolio with an expected return and standard deviation of zero. Luis Green is an investor who uses the security market line to determine whether securities are properly valued. He is evaluating the stocks of two companies, Mia Shoes and Video Systems. The stock of Mia Shoes is currently trading at $15 per share, and the stock of Video Systems is currently trading at $18 per share. Green expects the prices of both stocks to increase by $2 in a year. Neither company pays dividends. Mia Shoes has a beta of 0.9 and Video Systems has a beta of (-0.30). If the market return is 15 percent and the risk-free rate is 8 percent, which trading strategy will Green employ? Mia Shoes Video Systems Buy Sell
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B) C) D) Question #11 of 50 Question ID: 438588 A) B) C) D) Question #12 of 50 Question ID: 438623 A) B) C) D) Question #13 of 50 Question ID: 438592 A) B) C) Buy Buy Sell Sell Sell Buy Total Quality Inc. has a beta of 1.15. If the expected return on the market is 12 percent, and the risk-free rate is 6 percent, what is the expected return for Total Quality? 12.90%. 10.15%. 14.00%. 11.69%. An investor believes Stock M will rise from a current price of $20 per share to a price of $26 per share over the next year. The company is not expected to pay a dividend. The following information pertains: R = 8% ER = 16% Beta = 1.7 Should the investor purchase the stock? Yes, because it is overvalued. No, because it is undervalued. No, because it is overvalued. Yes, because it is undervalued. If the standard deviation of the market's returns is 5.8%, the standard deviation of a stock's returns is 8.2%, and the covariance of the market's returns with the stock's returns is 0.003, what is the beta of the stock? 1.07. 1.12. 0.89. F M
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D) Question #14 of 50 Question ID: 438598 A) B) C) D) Question #15 of 50 Question ID: 438597 A) B) C) D) Question #16 of 50 Question ID: 438577 A) B) C) D) Question #17 of 50 Question ID: 438615 A) B) 0.05. Which of the following is an assumption of capital market theory? All investors: have multiple-period time horizons. select portfolios that lie above the efficient frontier to optimize the risk-return relationship. select portfolios that lie below the efficient frontier to optimize the risk-return relationship. see the same risk/return distribution for a given stock. Which of the following is NOT an assumption of capital market theory? Interest rates never change from period to period. There are no taxes or transaction costs. Investors can lend at the risk-free rate, but borrow at a higher rate. The capital markets are in equilibrium. Which of the following statements regarding the Capital Asset Pricing Model is least accurate?
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