34.
Assume that stock market returns do follow a single-index structure. An investment fund
analyzes 500 stocks in order to construct a mean-variance efficient portfolio constrained
by 500 investments. They will need to calculate ________ estimates of firm-specific
variances and ________ estimate/estimates for the variance of the macroeconomic factor.
35.
Consider the single-index model. The alpha of a stock is 0%. The return on the market
index is 16%. The risk-free rate of return is 5%. The stock earns a return that exceeds the
risk-free rate by 11% and there are no firm-specific events affecting the stock
performance. The β of the stock is
36.
Suppose you held a well-diversified portfolio with a very large number of securities, and
that the single index model holds. If the σ of your portfolio was 0.20 and σ
M
was 0.16, the
β of the portfolio would be approximately
Topic: Index Models
37.
Suppose you held a well-diversified portfolio with a very large number of securities, and
that the single index model holds. If the σ of your portfolio was 0.22 and σ
M
was 0.19, the
β of the portfolio would be approximately
Topic: Index Models
38.
Suppose you held a well-diversified portfolio with a very large number of securities, and
that the single index model holds. If the σ of your portfolio was 0.18 and σ
M
was 0.24, the
β of the portfolio would be approximately
39.
Suppose the following equation best describes the evolution of β over time:
β
t
= 0.25 + 0.75β
t
– 1.
If a stock had a β of 0.6 last year, you would forecast the β to be _______ in the coming
year.
40.
Suppose the following equation best describes the evolution of β over time:
β
t
= 0.31 + 0.82β
t
– 1.
If a stock had a β of 0.88 last year, you would forecast the β to be _______ in the coming
year.
41.
Suppose the following equation best describes the evolution of β over time:
β
t
= 0.18 + 0.63β
t
– 1.
If a stock had a β of 1.09 last year, you would forecast the β to be _______ in the coming
year.
42.
An analyst estimates the index model for a stock using regression analysis involving total
returns. The estimated the intercept in the regression equation is 6% and the β is 0.5. The
Topic: Index Models
43.
The index model for stock A has been estimated with the following result:
RA
= 0.01 + 0.9
RM
+
eA
.
If σ
M
= 0.25 and
R
2
A
= 0.25, the standard deviation of return of stock A is
Topic: Index Models
44.
The index model for stock B has been estimated with the following result:
RB
= 0.01 + 1.1
RM
+
eB
.
If σ
M
= 0.20 and
R
2
B
= 0.50, the standard deviation of the return on stock B is
45.
Suppose you forecast that the market index will earn a return of 15% in the coming year.
Treasury bills are yielding 6%. The unadjusted β of Mobil stock is 1.30. A reasonable
forecast of the return on Mobil stock for the coming year is _________ if you use a common
method to derive adjusted betas.
46.
The index model has been estimated for stocks A and B with the following results:
RA
= 0.01 + 0.5
RM
+
eA
.
RB
= 0.02 + 1.3R
M
+
eB
.
σ
M
= 0.25; σ(
eA
) = 0.20; σ(
eB
) = 0.10.
The covariance between the returns on stocks A and B is
47.
The index model has been estimated for stocks A and B with the following results:
RA
= 0.01 + 0.
8RM
+
eA
.
RB
= 0.02 + 1.
2RM
+
eB
.
σ
M
= 0.20; σ(
eA
) = 0.20; σ(
eB
) = 0.10.
The standard deviation for stock A is
48.
The index model has been estimated for stock A with the following results:
RA
= 0.01 + 0.8
RM
+
eA
.
σ
M
= 0.20; σ(
eA
) = 0.10.
The standard deviation of the return for stock A is
49.
Security returns
50.
The single-index model
51.
The security characteristic line (SCL)
52.
The expected impact of unanticipated macroeconomic events on a security’s return during
the period is
Topic: Index Models
53.
Covariances between security returns tend to be
8-69
54.
In the single-index model represented by the equation
ri
=
E
(
ri
) + β
iF
+
ei
, the term
ei
represents
55.
Suppose you are doing a portfolio analysis that includes all of the stocks on the NYSE.
Using a single-index model rather than the Markowitz model
56.
One “cost” of the single-index model is that it
57.
The security characteristic line (SCL) associated with the single-index model is a plot of
58.
The idea that there is a limit to the reduction of portfolio risk due to diversification is
59.
In their study about predicting beta coefficients, which of the following did Rosenberg and
Guy find to be factors that influence beta?
I) Industry group
II) Variance of cash flow
III) Dividend yield
IV) Growth in earnings per share
60.
If a firm’s beta was calculated as 1.6 in a regression equation, a commonly used
adjustment technique would provide an adjusted beta of
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