CHAPTER 10: ARBITRAGE PRICING THEORY AND MULTIFACTOR MODELS OF RISK AND
RETURN
CHAPTER 10: ARBITRAGE PRICING THEORY AND
MULTIFACTOR MODELS OF RISK AND RETURN
PROBLEM SETS
1.
The revised estimate of the expected rate of return on the stock would be the old

CHAPTER 9: THE CAPITAL ASSET PRICING MODEL
CHAPTER 9: THE CAPITAL ASSET PRICING MODEL
PROBLEM SETS
1.
E (rP ) rf P [ E (rM ) rf ]
.18 .06 P [.14 .06] P
2.
.12
1.5
.08
If the securitys correlation coefficient with the market portfolio doubles (with all
o

CHAPTER 5: INTRODUCTION TO RISK, RETURN, AND
THE HISTORICAL RECORD
CHAPTER 5: INTRODUCTION TO RISK, RETURN, AND
THE HISTORICAL RECORD
PROBLEM SETS
1.
The Fisher equation predicts that the nominal rate will equal the equilibrium
real rate plus the expected

CHAPTER 8: INDEX MODELS
CHAPTER 8: INDEX MODELS
PROBLEM SETS
1.
The advantage of the index model, compared to the Markowitz procedure, is the
vastly reduced number of estimates required. In addition, the large number of
estimates required for the Markowit

CHAPTER 6: RISK AVERSION AND
CAPITAL ALLOCATION TO RISKY ASSETS
CHAPTER 6: RISK AVERSION AND
CAPITAL ALLOCATION TO RISKY ASSETS
PROBLEM SETS
1.
(e)
2.
(b) A higher borrowing rate is a consequence of the risk of the borrowers default.
In perfect markets wi