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44. The risk-free rate and the expected market rate of return are 6% and 16%, respectively.
According to the capital asset pricing model, the expected rate of return on security X with a beta
of 1.2 is equal to _________.
45. Consider two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.2.
Stock B has an expected return of 14% and a beta of 1.8. The expected market rate of return is 9%
and the risk-free rate is 5%. Security __________ would be considered the better buy because
_________.
46. According to the CAPM, the risk premium an investor expects to receive on any stock or
portfolio is _______________.
47. In his famous critique of the CAPM, Roll argued that the CAPM ______________.
48. Which of the following variables do Fama and French claim do a better job explaining
stock returns than beta?
I. Book-to-market ratio
II. Unexpected change in industrial production
III. Firm size
49. In a study conducted by Jagannathan and Wang, it was found that the performance of
beta in explaining security returns could be considerably enhanced by:
I. Including the unsystematic risk of a stock
II. Including human capital in the market portfolio
III. Allowing for changes in beta over time
50. The SML is valid for _______________, and the CML is valid for ______________.
51. Liquidity is a risk factor that __________.
52. Beta is a measure of ______________.
53. According to capital asset pricing theory, the key determinant of portfolio returns is
_________.
54. The expected return of the risky-asset portfolio with minimum variance is _________.
55. According to the CAPM, investors are compensated for all but which of the following?
56. The most significant conceptual difference between the arbitrage pricing theory (APT) and
the capital asset pricing model (CAPM) is that the CAPM _____________.
57. Arbitrage is __________________________.
58. A stock's alpha measures the stock's ____________________.
59. The measure of unsystematic risk can be found from an index model as _________.
60. Standard deviation of portfolio returns is a measure of ___________.
61. One of the main problems with the arbitrage pricing theory is __________.
62. You run a regression of a stock's returns versus a market index and find the following:
Based on the data, you know that the stock _____.
63. The expected return on the market portfolio is 15%. The risk-free rate is 8%. The expected
return on SDA Corp. common stock is 16%. The beta of SDA Corp. common stock is 1.25. Within
the context of the capital asset pricing model, _________.
64. Assume that both X and Y are well-diversified portfolios and the risk-free rate is 8%.
Portfolio X has an expected return of 14% and a beta of 1. Portfolio Y has an expected return of
9.5% and a beta of .25. In this situation, you would conclude that portfolios X and Y _________.
65.
What is the expected return on the market?
66.
What is the beta for a portfolio with an expected return of 12.5%?
67.
What is the expected return for a portfolio with a beta of .5?
