Chapter 09 The Capital Asset Pricing Model Answer Key
Multiple Choice Questions
1.
In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of risk is
2.
In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is
3.
In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is
4.
According to the Capital Asset Pricing Model (CAPM) a well diversified portfolio’s rate of
return is a function of
5.
According to the Capital Asset Pricing Model (CAPM) a well diversified portfolio’s rate of
return is a function of
Topic: CAPM
6.
Topic: CAPM
According to the Capital Asset Pricing Model (CAPM) a well diversified portfolio’s rate of
return is a function of
7.
The market portfolio has a beta of
8.
The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively.
According to the capital asset pricing model (CAPM), the expected rate of return on
security X with a beta of 1.2 is equal to
9.
The risk-free rate and the expected market rate of return are 0.056 and 0.125, respectively.
According to the capital asset pricing model (CAPM), the expected rate of return on a
security with a beta of 1.25 is equal to
Topic: CAPM
10.
Which statement is not true regarding the market portfolio?
11.
Which statement is true regarding the market portfolio?
I) It includes all publicly traded financial assets.
II) It lies on the efficient frontier.
III) All securities in the market portfolio are held in proportion to their market values.
IV) It is the tangency point between the capital market line and the indifference curve.
12.
Which statement is not true regarding the capital market line (CML)?
13.
Which statement is true regarding the capital market line (CML)?
I) The CML is the line from the risk-free rate through the market portfolio.
II) The CML is the best attainable capital allocation line.
III) The CML is also called the security market line.
IV) The CML always has a positive slope.
14.
The market risk, beta, of a security is equal to
15.
According to the Capital Asset Pricing Model (CAPM), the expected rate of return on any
security is equal to
Topic: CAPM
16.
The security market line (SML) is
17.
According to the Capital Asset Pricing Model (CAPM), fairly priced securities have
18.
According to the Capital Asset Pricing Model (CAPM), underpriced securities have
19.
According to the Capital Asset Pricing Model (CAPM), overpriced securities have
20.
According to the Capital Asset Pricing Model (CAPM), a security with a
21.
According to the Capital Asset Pricing Model (CAPM), which one of the following
statements is false?
22.
In a well-diversified portfolio
23.
Empirical results regarding betas estimated from historical data indicate that betas
24.
Your personal opinion is that a security has an expected rate of return of 0.11. It has a
beta of 1.5. The risk-free rate is 0.05 and the market expected rate of return is 0.09.
According to the Capital Asset Pricing Model, this security is
25.
The risk-free rate is 7%. The expected market rate of return is 15%. If you expect a stock
with a beta of 1.3 to offer a rate of return of 12%, you should
26.
You invest $600 in a security with a beta of 1.2 and $400 in another security with a beta of
0.90. The beta of the resulting portfolio is
27.
A security has an expected rate of return of 0.10 and a beta of 1.1. The market expected
rate of return is 0.08 and the risk-free rate is 0.05. The alpha of the stock is
28.
Your opinion is that CSCO has an expected rate of return of 0.13. It has a beta of 1.3. The
risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the
Capital Asset Pricing Model, this security is
29.
Your opinion is that CSCO has an expected rate of return of 0.1375. It has a beta of 1.3.
The risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the
Capital Asset Pricing Model, this security is
30.
Your opinion is that CSCO has an expected rate of return of 0.15. It has a beta of 1.3. The
risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the
Capital Asset Pricing Model, this security is
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
32.
Your opinion is that Boeing has an expected rate of return of 0.0952. 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
33.
Your opinion is that Boeing has an expected rate of return of 0.08. 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
34.
As a financial analyst, you are tasked with evaluating a capital budgeting project. You
were instructed to use the IRR method and you need to determine an appropriate hurdle
rate. The risk-free rate is 4% and the expected market rate of return is 11%. Your company
has a beta of 1.0 and the project that you are evaluating is considered to have risk equal to
the average project that the company has accepted in the past. According to CAPM, the
appropriate hurdle rate would be