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12 Cards in this Set
- Front
- Back
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1. Consider the CAPM. The risk-free rate is 5% and the expected return on the market is 15%. What is the beta on a stock with an expected return of 17%?
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1.2
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2.Two investment advisors are comparing performance. Advisor A averaged a 20% return with a portfolio beta of 1.5 and Advisor B averaged a 15% return with a portfolio beta of 1.2. If the T-bill rate was 5% and the market return during the period was 13%, which advisor was the better stock picker?
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Advisor A was better because he generated a larger alpha
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What is the expected return on the market?
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10%
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The possibility of arbitrage arises when ____________.
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mispricing among securities creates opportunities for riskless profits
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. According to the CAPM, what is the market risk premium given an expected return on a security of 13.6%, a stock beta of 1.2, and a risk free interest rate of 4.0%?
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8.0%
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6. According to the capital asset pricing model, a fairly priced security will plot _________.
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along the security market line
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In a simple CAPM world which of 7. The following statements is/are correct?
I. All investors will choose to hold the market portfolio, which includes all risky assets in the world II. Investors' complete portfolio will vary depending on their risk aversion III. The return per unit of risk will be identical for all individual assets IV. The market portfolio will be on the efficient frontier and it will be the optimal risky portfolio |
I, II, III and IV
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9. If enough investors decide to purchase stocks they are likely to drive up stock prices thereby causing _____________ and
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expected returns to rise; risk premiums to fall
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10. A stock's alpha measures the stock's ____________________.
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excess return
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11. Liquidity is a risk factor that __________.
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is unaffected by trading mechanisms on various stock exchanges
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12. According to the CAPM, the risk premium an investor expects to receive on any stock or portfolio is _______________.
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directly related to the risk aversion of the particular investor
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13. What is the alpha of a portfolio with a beta of 2 and actual return of 15%?
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0%
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