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Question :
41.If a stock were overpriced, it would plot:
A. above the security : 1409435

41.If a stock were overpriced, it would plot:

A. above the security market line.

B. below the security market line.

C. on the security market line.

D. on the Y-axis.

42.If a stock were underpriced, it would plot:

A. above the security market line.

B. below the security market line.

C. on the security market line.

D. on the Y-axis.

43.Assume the following data for a stock: Beta = 1.5; Risk-free rate = 4%; Market rate of return = 12%; and Expected rate of return on the stock = 15%. Then the stock is:

A. overpriced.

B. underpriced.

C. correctly priced.

D. cannot be determined.

44.Assume the following data for a stock: Beta = 0.5; Risk-free rate = 4%; Market rate of return = 12%; and Expected rate of return on the stock = 10%. Then the stock is:

A. overpriced.

B. underpriced.

C. correctly priced.

D. cannot be determined.

45.Assume the following data for a stock: Beta = 0.9; Risk-free rate = 4%; Market rate of return = 14%; and Expected rate of return on the stock = 13%. Then the stock is:

A. overpriced.

B. underpriced.

C. correctly priced.

D. cannot be determined.

46.A factor in APT is a variable that:

A. is pure "noise".

B. correlates with risky asset returns in an unsystematic manner.

C. correlates with the returns of risky assets in a systematic manner.

D. affects the returns of risky assets in a random manner.

47.Assume the following data for a stock: Risk-free rate = 4%; Factor-1 beta = 1.5; Factor-2 beta = 0.5; Factor-1 risk-premium = 8%; Factor-2 risk-premium = 2%. Calculate the expected rate of return on the stock using a two-factor APT model.

A. 14%

B. 17%

C. 10%

D. 13%

48.Which of the following is included in the Fama-French Three-Factor Model?

I) market factor;

II) liquidity factor;

III) book-to-market factor;

IV) size factor

A. I and II only

B. I, II, and IV

C. I, II, and III

D. I, III, and IV

49.Assume the following data for a stock: Risk-free rate = 5%; Beta (market) = 1.5; Beta (size) = 0.3; Beta (book-to-market) = 1.1; Market risk premium = 7%; Size risk premium = 3.7%; and Book-to-market risk premium = 5.2%. Calculate the expected return on the stock using the Fama-French three-factor model.

A. 22.3%

B. 7.8%

C. 11.5%

D. 20.9%

50.Assume the following data for a stock: Risk-free rate = 5%; Beta (market) = 1.4; Beta (size) = 0.4; Beta (book-to-market) = -1.1; Market risk premium = 7%; Size risk premium = 3.7%; and book-to-market risk premium = 5.2%. Calculate the expected return on the stock using the Fama-French three-factor model.

A. 22.3%

B. 7.8%

C. 10.6%

D. 20.9%

51.How can an investor earn more than the return generated by the tangency portfolio and still stay on the security market line?

A. Borrow at the risk-free rate and invest in the tangency portfolio.

B. Add high risk/return assets to the portfolio.

C. Adjust the weight of stock in the portfolio to include fewer high-return stocks.

D. It cannot be done.

52.For a company like the aluminum manufacturer Alcoa, what is the most likely factor when developing an arbitrage pricing model?

A. returns on the S&P 500 index

B. commodity price of aluminum

C. GDP

D. inflation