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Study Resources (Business Management)

  61. The beta of a stock has been estimated as 1.8 using regression analysis on a sample of historical returns. A commonly used adjustment technique would provide an adjusted beta of ___________. A. 1.20B. 1.53C. 1.13D. 1.0E. 1.76 62. Assume that stock market returns do not resemble a single-index structure. An investment fund analyzes 40 stocks in order to.
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  41. The likelihood of an investment newsletter's successfully predicting the direction of the market for three consecutive years by chance should be A. between 50% and 70%.B. between 25% and 50%.C. between 10% and 25%.D. less than 10%.E. greater than 70%. 42. In an efficient market the correlation coefficient between stock returns for two non-overlapping time periods should be A. positive.
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  75. Discuss the advantages of arbitrage pricing theory (APT) over the capital asset pricing model (CAPM) relative to diversified portfolios.  76. Discuss the advantages of the multifactor APT over the single factor APT and the CAPM. What is one shortcoming of the multifactor APT and how does this shortcoming compare to CAPM implications?  77. Discuss.
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  51. The risk that can be diversified away in a portfolio is referred to as ___________.I) diversifiable riskII) unique riskIII) systematic riskIV) firm-specific risk A. I, III, and IVB. II, III, and IVC. III and IVD. I, II, and IVE. I, II, III, and IV 52. As the number of securities in a portfolio is increased, what happens to.
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  51. What are the proportions of Stocks A, B, and C, respectively in Bo's complete portfolio? A. 40%, 25%, 35%B. 8%, 5%, 7%C. 32%, 20%, 28%D. 16%, 10%, 14%E. 20%, 12.5%, 17.5% 52. To build an indifference curve we can first find the utility of a portfolio with 100% in the risk-free asset, then A. find the utility of a portfolio.
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  41. Suppose the following equation best describes the evolution of ? over time: ?t= 0.18 + 0.63?t-1If a stock had a ? of 1.09 last year, you would forecast the ? to be _______ in the coming year. A. 0.87B. 0.18C. 0.63D. 0.81E. 0.96 42. An analyst estimates the index model for a stock using regression analysis involving total.
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Multiple Choice Questions  1. As diversification increases, the total variance of a portfolio approaches ____________. A. 0B. 1C. the variance of the market portfolioD. infinityE. -1 2. As diversification increases, the standard deviation of a portfolio approaches ____________. A. 0B. 1C. infinityD. the standard deviation of the market portfolioE. -1 3. As diversification increases, the firm-specific risk of a portfolio approaches ____________. A. 0B. 1C. infinityD. n-1 * nE. -1 4. As diversification increases, the unsystematic.
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  11. In developing the APT, Ross assumed that uncertainty in asset returns was a result of A. a common macroeconomic factorB. firm-specific factorsC. pricing errorD. neither common macroeconomic factors nor firm-specific factors.E. both common macroeconomic factors and firm-specific factors 12. The ____________ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _____________ implies that.
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  41. A reward-to-volatility ratio is useful in: A. measuring the standard deviation of returns.B. understanding how returns increase relative to risk increases.C. analyzing returns on variable rate bonds.D. assessing the effects of inflation.E. None of these is correct. 42. The change from a straight to a kinked capital allocation line is a result of: A. reward-to-volatility ratio increasing.B. borrowing rate exceeding lending.
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  51. Studies of liquidity spreads in security markets have shown that A. liquid stocks earn higher returns than illiquid stocks.B. illiquid stocks earn higher returns than liquid stocks.C. both liquid and illiquid stocks earn the same returns.D. illiquid stocks are good investments for frequent, short-term traders.E. only illiquid stocks should be held by most investors. 52. An underpriced security.
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  31. Your opinion is that Boeing has an expected rate of return of 0.112. It has a beta of 0.92. The risk-free rate is 0.04 and the market expected rate of return is 0.10. According to the Capital Asset Pricing Model, this security is A. underpriced.B. overpriced by 7%.C. fairly priced.D. cannot be determined from data.
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  61. Assume that a security is fairly priced and has an expected rate of return of 0.17. The market expected rate of return is 0.11 and the risk-free rate is 0.04. The beta of the stock is ___. A. 1.25.B. 1.86.C. 1.D. 0.95.E. 2.04. 62. The amount that an investor allocates to the market portfolio is negatively related toI).
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  Short Answer Questions  79. Discuss the differences between the capital market line and the security market line.  80. Discuss the assumptions of the capital asset pricing model, and how these assumptions relate to the "real world" investment decision process.      .
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  21. Jaffe (1974) found that stock prices _________ after insiders intensively bought shares. A. decreasedB. did not changeC. increasedD. became extremely volatileE. became much less volatile 22. Jaffe (1974) found that stock prices _________ after insiders intensively sold shares. A. decreasedB. did not changeC. increasedD. became extremely volatileE. became much less volatile 23. Banz (1981) found that, on average, the risk-adjusted returns of small firms A. were higher than.
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  31. A zero-investment portfolio with a positive expected return arises when _________. A. an investor has downside risk onlyB. the law of prices is not violatedC. the opportunity set is not tangent to the capital allocation lineD. a risk-free arbitrage opportunity existsE. a risk-free arbitrage opportunity does not exist 32. An investor will take as large a position as.
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  61. The coefficient of correlation between A and B is A. 0.474.B. 0.612.C. 0.590.D. 1.206.E. 0.751. 62. If you invest 35% of your money in A and 65% in B, what would be your portfolio's expected rate of return and standard deviation? A. 9.9%; 3%B. 9.9%; 1.1%C. 10%; 1.7%D. 10%; 3%E. 11%; 2.6% 63. The weights of A and B in the global minimum variance portfolio are.
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  31. An investor invests 70 percent of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 30 percent in a T-bill that pays 5 percent. His portfolio's expected return and standard deviation are __________ and __________, respectively. A. 0.120; 0.14B. 0.087; 0.06C. 0.295; 0.12D. 0.087;.
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  11. __________ focus more on past price movements of a firm's stock than on the underlying determinants of future profitability. A. Credit analystsB. Fundamental analystsC. Systems analystsD. Technical analystsE. Credit analysts, Fundamental analysts, Systems analysts, and Technical analysts 12. _________ above which it is difficult for the market to rise. A. A book value is a valueB. A resistance level is a.
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  11. Which statement is true regarding the market portfolio? A. It includes all publicly traded financial assets.B. It lies on the efficient frontier.C. All securities in the market portfolio are held in proportion to their market values.D. It is the tangency point between the capital market line and the indifference curve.E. It includes all publicly traded financial.
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Multiple Choice Questions  1. In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of risk is A. unique risk.B. beta.C. standard deviation of returns.D. variance of returns.E. skewness. 2. In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is A. unique risk.B. systematic risk.C. standard deviation of returns.D. variance of returns.E. semi-variance. 3. In the context of the Capital Asset.
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  11. The intercept in the regression equations calculated by beta books is equal to A. ? in the CAPMB. ? + rf(1 + ?)C. ? + rf(1 - ?)D. 1 - ?E. 1 12. Analysts may use regression analysis to estimate the index model for a stock. When doing so, the slope of the regression line is an estimate.
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  11. The standard deviation of a portfolio of risky securities is A. the square root of the weighted sum of the securities' variances.B. the square root of the sum of the securities' variances.C. the square root of the weighted sum of the securities' variances and covariances.D. the square root of the sum of the securities' covariances.E. is.
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  78. Discuss the similarities and the differences between the CAPM and the APT with regard to the following factors: capital market equilibrium, assumptions about risk aversion, risk-return dominance, and the number of investors required to restore equilibrium.  79. Security A has a beta of 1.0 and an expected return of 12%. Security B.
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Multiple Choice Questions  1. Market risk is also referred to as A. systematic risk, diversifiable risk.B. systematic risk, nondiversifiable risk.C. unique risk, nondiversifiable risk.D. unique risk, diversifiable risk.E. firm-specific risk. 2. Systematic risk is also referred to as A. market risk, nondiversifiable risk.B. market risk, diversifiable risk.C. unique risk, nondiversifiable risk.D. unique risk, diversifiable risk.E. firm-specific risk. 3. Nondiversifiable risk is also referred to as A. systematic risk, unique risk.B. systematic.
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  41. In the context of the Arbitrage Pricing Theory, as a well-diversified portfolio becomes larger its nonsystematic risk approaches A. one.B. infinity.C. zero.D. negative one.E. None of these is correct. 42. A well-diversified portfolio is defined as A. one that is diversified over a large enough number of securities that the nonsystematic variance is essentially zero.B. one that contains securities from at.
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  Short Answer Questions  77. Theoretically, the standard deviation of a portfolio can be reduced to what level? Explain. Realistically, is it possible to reduce the standard deviation to this level? Explain.  78. Discuss how the investor can use the separation theorem and utility theory to produce an efficient portfolio suitable for the investor's level.
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  69. Draw graphs that represent indifference curves for the following investors: Harry, who is a risk-averse investor; Eddie, who is a risk-neutral investor; and Ozzie, who is a risk-loving investor. Discuss the nature of each curve and the reasons for its shape.  70. Toby and Hannah are two risk-averse investors. Toby is more.
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  51. The Security Characteristic Line (SCL) A. plots the excess return on a security as a function of the excess return on the market.B. allows one to estimate the beta of the security.C. allows one to estimate the alpha of the security.D. plots the excess return on a security as a function of the excess return.
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  21. The utility score an investor assigns to a particular portfolio, other things equal, A. will decrease as the rate of return increases.B. will decrease as the standard deviation decreases.C. will decrease as the variance decreases.D. will increase as the variance increases.E. will increase as the rate of return increases. 22. The certainty equivalent rate of a portfolio is A. the.
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1. ___________ a relationship between expected return and risk. A. APT stipulatesB. CAPM stipulatesC. Both CAPM and APT stipulateD. Neither CAPM nor APT stipulateE. No pricing model has found 2. Consider the multifactor APT with two factors. Stock A has an expected return of 17.6%, a beta of 1.45 on factor 1 and a beta of .86 on factor.
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  72. Describe how an investor may combine a risk-free asset and one risky asset in order to obtain the optimal portfolio for that investor.  73. The optimal proportion of the risky asset in the complete portfolio is given by the equation y * = [E(rP)-rf]/(.01A * Variance of P). For each of the.
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  31. The risk-free portfolio that can be formed with the two securities will earn _____ rate of return. A. 8.5%B. 9.0%C. 8.9%D. 9.9%E. 6.2% 32. Given an optimal risky portfolio with expected return of 12% and standard deviation of 23% and a risk free rate of 3%, what is the slope of the best feasible CAL? A. 0.64B. 0.39C. 0.08D. 0.35E. 0.36 33. An investor who wishes.
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  71. If you invest 25% of your money in C and 75% in D, what would be your portfolio's expected rate of return and standard deviation? A. 9.891%; 8.70%B. 9.945%; 11.12%C. 8.225%; 8.70%D. 10.275%; 11.12%E. 8.75%; 9.70%  Consider two perfectly negatively correlated risky securities K and L. K has an expected rate of return of 13% and a.
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1. If you believe in the ________ form of the EMH, you believe that stock prices reflect all relevant information including historical stock prices and current public information about the firm, but not information that is available only to insiders. A. semistrongB. strongC. weakD. semistrong, strong, and weakE. hard 2. When Maurice Kendall examined the patterns of stock returns.
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  Short Answer Questions  85. Discuss the advantages of the single-index model over the Markowitz model in terms of numbers of variable estimates required and in terms of understanding risk relationships.  86. Discuss the security characteristic line (SCL).  87. Discuss a commonly used adjustment technique to provide an adjusted beta.      .
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  31. Fama and French (1992) found that the stocks of firms within the highest decile of book-to-market ratios had average monthly returns of _______ while the stocks of firms within the lowest decile of book-to-market ratios had average monthly returns of________. A. greater than 1%, greater than 1%B. greater than 1%, less than 1%C. less.
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  41. The individual investor's optimal portfolio is designated by: A. The point of tangency with the indifference curve and the capital allocation line.B. The point of highest reward to variability ratio in the opportunity set.C. The point of tangency with the opportunity set and the capital allocation line.D. The point of the highest reward to variability.
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  51. In the APT model, what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of ?(ei) equal to 20% and 40 securities? A. 12.5%B. 625%C. 0.5%D. 3.54%E. 3.16% 52. In the APT model, what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of ?(ei) equal to 18%.
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  61. Which of the following factors were used by Fama and French in their multi-factor model? A. Return on the market index.B. Excess return of small stocks over large stocks.C. Excess return of high book-to-market stocks over low book-to-market stocks.D. All of these factors were included in their model.E. None of these factors were included in their.
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  21. If a firm's beta was calculated as 0.8 in a regression equation, a commonly used adjustment technique would provide an adjusted beta of A. less than 0.8 but greater than zero.B. between 1.0 and 1.8.C. between 0.8 and 1.0.D. greater than 1.8.E. zero or less. 22. If a firm's beta was calculated as 1.3 in a regression equation,.
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  Short Answer Questions  66. Discuss the differences between investors who are risk averse, risk neutral, and risk loving.  67. In the utility function: U = E(r) - [-0.005As2], what is the significance of "A"?  68. What is a fair game? Explain how the term relates to a risk-averse investor's attitude toward speculation and risk and how.
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  21. Which of the following statement(s) is (are) false regarding the selection of a portfolio from those that lie on the Capital Allocation Line? A. Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than more risk-averse investors.B. More risk-averse investors will invest less in the.
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  21. According to the Capital Asset Pricing Model (CAPM), which one of the following statements is false? A. The expected rate of return on a security increases in direct proportion to a decrease in the risk-free rate.B. The expected rate of return on a security increases as its beta increases.C. A fairly priced security has.
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  31. Assume that stock market returns do follow a single-index structure. An investment fund analyzes 175 stocks in order to construct a mean-variance efficient portfolio constrained by 175 investments. They will need to calculate ________ estimates of expected returns and ________ estimates of sensitivity coefficients to the macroeconomic factor. A. 175; 15,225B. 175; 175C. 15,225;.
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