36)36)Objections to the fully rational approach are that the ________. A)calculations needed to implement this approach are somewhat difficult to do.B)experiments performed by research that find alleged psychological biases are arbitrary.C)"alleged psychology biases are arbitrary."D)empirical evidence in the finance literature does not support rational behavior by investors.Answer:DTRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.37)37)Risk aversion means that investors want to minimize risk for any given level of expected return, orwant to maximize return, for any given level of risk.Answer:TrueFalse38)38)The index of the sensitivity of a security's returns to movement in the market is the security'sstandard deviation, which can be estimated with regression techniques from historical data.Answer:TrueFalse39)39)The market model is the hypothesis that a security's return may be attributed to two forces, thereturns on securities in general, and events related to the market itself.Answer:TrueFalse40)40)The relevant risk of any individual security is not total variability in returns but rather systematicvariability, which is that portion of total variability that cannot be eliminated by combining it withother securities in a diversified portfolio.Answer:TrueFalse41)41)The capital asset pricing model (or CAPM) hypothesizes that assets with the same level ofsystematic risk should experience the same level of returns.Answer:TrueFalse42)42)The level of returns expected from any asset (which may be an individual security or a portfolio ofsecurities) is an exponential function of the risk-free rate, the asset's beta, and the returns expectedon the market portfolio of risky assets.Answer:TrueFalse43)43)Some reservations about the CAPM are inevitable because it makes many assumptions aboutinvestors' behavior and the structure of the market where assets are traded.Answer:TrueFalse44)44)A major strength of the CAPM is that it is basically testable because the true market portfolio is anattainable portfolio diversified across all risky assets in the world.Answer:TrueFalse9
45)45)The multifactor CAPM says that investors want to be compensated only for market risk.Answer:TrueFalse46)46)The multifactor CAPM posits that extra-market factors influence expected returns on securities orportfolios.Answer:TrueFalse47)47)The arbitrage pricing theory (or APT) model postulates that a security's return is a function ofseveral factors and the security's sensitivity to changes in each of them.Answer:TrueFalse48)48)If a security's market price were to deviate from the level justified by the APT factors and thesecurity's price sensitivity to them, investors would engage in arbitrage and drive the market priceto an appropriate level.
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