优质MultipleChoiceQuestionschapt11

1、Multiple Choice Questions1. 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 foundAnswer: C Difficulty: EasyRationale: Both models attempt to explain asset pricing based on risk/r

2、eturn relationships.2. Which pricing model provides no guidance concerning the determination of the risk premium on factor portfolios?A) The CAPMB) The multifactor APTC) Both the CAPM and the multifactor APTD) Neither the CAPM nor the multifactor APTE) None of the above is a true statement.Answer: B

3、 Difficulty: ModerateRationale: The multifactor APT provides no guidance as to the determination of the risk premium on the various factors. The CAPM assumes that the excess market return over the risk-free rate is the market premium in the single factor CAPM.3. An arbitrage opportunity exists if an

4、 investor can construct a investmentportfolio that will yield a sure profit.A) positiveB) negativeC) zeroD) all of the aboveE) none of the aboveAnswer: C Difficulty: EasyRationale: If the investor can construct a portfolio without the use of the investors own funds and the portfolio yields a positiv

5、e profit, arbitrage opportunities exist.4. The APT was developed in 1976 by A) LintnerB) Modigliani and MillerC) RossD) SharpeE) none of the aboveAnswer: C Difficulty: EasyRationale: Ross developed this model in 1976.5. A portfolio is a well-diversified portfolio constructed to have a beta of 1on on

6、e of the factors and a beta of 0 on any other factor.A) factorB) marketC) indexD) A and BE) A, B, and CAnswer: A Difficulty: EasyRationale: A factor model portfolio has a beta of 1 one factor, with zero betas on other factors.6. The exploitation of security mispricing in such a way that risk-free ec

7、onomic profits may be earned is called .A) arbitrageB) capital asset pricingC) factoringD) fundamental analysisE) none of the aboveAnswer: A Difficulty: EasyRationale: Arbitrage is earning of positive profits with a zero (risk-free) investment.7. In developing the APT, Ross assumed that uncertainty

8、in asset returns was a result ofA) a common macroeconomic factor.B) firm-specific factors.C) pricing error.D) neither A nor BE) both A and BAnswer: E Difficulty: ModerateRationale: Total risk (uncertainty) is assumed to be composed of both macroeconomic and firm-specific factors.8. The provides an u

9、nequivocal statement on the expected return-betarelationship for all assets, whereas the implies that this relationshipholds for all but perhaps a small number of securities.A) APT, CAPMB) APT, OPMC) CAPM, APTD) CAPM, OPME) none of the aboveAnswer: C Difficulty: ModerateRationale: The CAPM is an ass

10、et-pricing model based on the risk/return relationship of all assets. The APT implies that this relationship holds for all well-diversified portfolios, and for all but perhaps a few individual securities.9. Consider a single factor APT. Portfolio A has a beta of 1.0 and an expected return of 16%. Po

11、rtfolio B has a beta of 0.8 and an expected return of 12%. The risk-free rate of return is 6%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio and a long position in portfolioA) A, AB) A, BC) B, AD) B, BE) A, the riskless assetAnswer: C Diff

12、iculty: ModerateRationale: A: 16% = 1.0F + 6%; F = 10%; B: 12% = 0.8F + 6%: F = 7.5%; thus, short B and take a long position in A.10. Consider the single factor APT. Portfolio A has a beta of 0.2 and an expected return of 13%. Portfolio B has a beta of 0.4 and an expected return of 15%. The risk-fre

13、e rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio and a long position in portfolioA) A, AB) A, BC) B, AD) B, BE) none of the aboveAnswer: C Difficulty: ModerateRationale: A: 13% = 10% + 0.2F; F = 15%; B: 15% = 10% + 0.

14、4F; F = 12.5%; therefore, short B and take a long position in A.11. Consider the one-factor APT. The variance of returns on the factor portfolio is 6%.The beta of a well-diversified portfolio on the factor is 1.1. The variance of returns on the well-diversified portfolio is approximately .A) 3.6%B)

15、6.0%C) 7.3%D) 10.1%E) none of the aboveAnswer: C Difficulty: Moderate22Rationale: s2P = (1.1)2(6%) = 7.26%.12. Consider the one-factor APT. The standard deviation of returns on a well-diversified portfolio is 18%. The standard deviation on the factor portfolio is 16%. The beta of the well-diversifie

16、d portfolio is approximately .A) 0.80B) 1.13C) 1.25D) 1.56E) none of the aboveAnswer: B Difficulty: Moderate2 2 2Rationale: (18%)2 = (16%)2 b2; b = 1.125.13. Consider the single-factor APT. Stocks A and B have expected returns of 15% and 18%, respectively. The risk-free rate of return is 6%. Stock B

17、 has a beta of 1.0. If arbitrage opportunities are ruled out, stock A has a beta of .A) 0.67B) 1.00C) 1.30D) 1.69E) none of the aboveAnswer: E Difficulty: ModerateRationale: A: 15% = 6% + bF; B: 8% = 6% + 1.0F; F = 12%; thus, beta of A = 9/12 = 0.75.14. Consider the multifactor APT with two factors.

18、 Stock A has an expected return of 16.4%, a beta of 1.4 on factor 1 and a beta of .8 on factor 2. The risk premium on the factor 1 portfolio is 3%. The risk-free rate of return is 6%. What is the risk-premium on factor 2 if no arbitrage opportunities exit?A) 2%B) 3%C) 4%D) 7.75%E) none of the aboveA

19、nswer: D Difficulty: DifficultRationale: 16.4% = 1.4(3%) + .8x + 6%; x = 7.75.15. Consider the multifactor model APT with two factors. Portfolio A has a beta of 0.75 on factor 1 and a beta of 1.25 on factor 2. The risk premiums on the factor 1 and factor 2 portfolios are 1% and 7%, respectively. The

20、 risk-free rate of return is 7%. The expected return on portfolio A is if no arbitrage opportunities exist.A) 13.5%B) 15.0%C) 16.5%D) 23.0%E) none of the aboveAnswer: C Difficulty: ModerateRationale: 7% + 0.75(1%) + 1.25(7%) = 16.5%.16. Consider the multifactor APT with two factors. The risk premium

21、s on the factor 1 and factor 2 portfolios are 5% and 6%, respectively. Stock A has a beta of 1.2 on factor 1, and a beta of 0.7 on factor 2. The expected return on stock A is 17%. If no arbitrage opportunities exist, the risk-free rate of return is .A) 6.0%B) 6.5%C) 6.8%D) 7.4%E) none of the aboveAn

22、swer: C Difficulty: ModerateRationale: 17% = x% + 1.2(5%) + 0.7(6%); x = 6.8%.17. Consider a one-factor economy. Portfolio A has a beta of 1.0 on the factor and portfolio B has a beta of 2.0 on the factor. The expected returns on portfolios A and B are 11% and 17%, respectively. Assume that the risk

23、-free rate is 6% and that arbitrage opportunities exist. Suppose you invested $100,000 in the risk-free asset, $100,000 in portfolio B, and sold short $200,000 of portfolio A. Your expected profit from this strategy would be .A) -$1,000B) $0C) $1,000D) $2,000E) none of the aboveAnswer: C Difficulty:

24、 ModerateRationale: $100,000(0.06) = $6,000 (risk-free position); $100,000(0.17) = $17,000 (portfolio B); -$200,000(0.11) = -$22,000 (short position, portfolio A); 1,000 profit.18. Consider the one-factor APT. Assume that two portfolios, A and B, are well diversified. The betas of portfolios A and B

25、 are 1.0 and 1.5, respectively. The expected returns on portfolios A and B are 19% and 24%, respectively. Assuming no arbitrage opportunities exist, the risk-free rate of return must be .A) 4.0%B) 9.0%C) 14.0%D) 16.5%E) none of the aboveAnswer: B Difficulty: ModerateRationale: A: 19% = rf + 1(F); B:

26、24% = rf + 1.5(F); 5% = .5(F); F = 10%; 24% = rf + 1.5(10); ff = 9%.19. Consider the multifactor APT. The risk premiums on the factor 1 and factor 2 portfolios are 5% and 3%, respectively. The risk-free rate of return is 10%. Stock A has an expected return of 19% and a beta on factor 1 of 0.8. Stock

27、 A has a beta on factor 2 of .A) 1.33B) 1.50C) 1.67D) 2.00E) none of the aboveAnswer: C Difficulty: ModerateRationale: 19% = 10% + 5%(0.8) + 3%(x); x = 1.67.20. Consider the single factor APT. Portfolios A and B have expected returns of 14% and 18%, respectively. The risk-free rate of return is 7%.

28、Portfolio A has a beta of 0.7. If arbitrage opportunities are ruled out, portfolio B must have a beta of .A) 0.45B) 1.00C) 1.10D) 1.22E) none of the aboveAnswer: C Difficulty: ModerateRationale: A: 14% = 7% + 0.7F; F = 10; B: 18% = 7% + 10b; b = 1.10.Use the following to answer questions 21-24:There

29、 are three stocks, A, B, and C. You can either invest in these stocks or short sell them. There are three possible states of nature for economic growth in the upcoming year; economic growth may be strong, moderate, or weak. The returns for the upcoming year on stocks A, B, and C for each of these st

30、ates of nature are given below:21. If you invested in an equally weighted portfolio of stocks A and B, your portfolio return would be if economic growth were moderate.A) 3.0%B) 14.5%C) 15.5%D) 16.0%E) none of the aboveAnswer: D Difficulty: EasyRationale: E(Rp) = 0.5(17%) + 0.5(15%) = 16%.22. If you

31、invested in an equally weighted portfolio of stocks A and C, your portfolio return would be if economic growth was strong.A) 17.0%B) 22.5%C) 30.0%D) 30.5%E) none of the aboveAnswer: B Difficulty: EasyRationale: 0.5(39%) + 0.5(6%) = 22.5%.23. If you invested in an equally weighted portfolio of stocks

32、 B and C, your portfolio return would be if economic growth was weak.A) -2.5%B) 0.5%C) 3.0%D) 11.0%E) none of the aboveAnswer: D Difficulty: EasyRationale: 0.5(0%) + 0.5(22%) = 11%.24. If you wanted to take advantage of a risk-free arbitrage opportunity, you should take a short position in and a lon

33、g position in an equally weighted portfolio ofA) A, B and CB) B, A and CC) C, A and BD) A and B, CE) none of the above, none of the aboveAnswer: C Difficulty: DifficultRationale: E(RA) = (39% + 17% - 5%)/3 = 17%; E(RB) = (30% + 15% + 0%)/3 = 15%;E(RC) = (22% + 14% + 6%)/3 = 14%; E(R P) = -0.5(14%) +

34、 0.5(17% + 15%)/2; -7.0% + 8.0% = 1.0%.Use the following to answer questions 25-26:Consider the multifactor APT. There are two independent economic factors, 1Fand F2. The risk-free rate of return is 6%. The following information is available about two well- diversified portfolios:25. Assuming no arb

35、itrage opportunities exist, the risk premium on the factor 1F portfolio should be .A) 3%B) 4%C) 5%D) 6%E) none of the aboveAnswer: A Difficulty: DifficultRationale: 2A: 38% = 12% + 2.0(RP1) + 4.0(RP2); B: 12% = 6% + 2.0(RP1) + 0.0(RP2);26% = 6% + 4.0(RP2); RP2 = 5; A: 19% = 6% + RP1 + 2.0(5); RP1 =

36、3%.26. Assuming no arbitrage opportunities exist, the risk premium on the factor 2F portfolio should be .A) 3%B) 4%C) 5%D) 6%E) none of the aboveAnswer: C Difficulty: DifficultRationale: See solution to previous problem.27. A zero-investment portfolio with a positive expected return arises when .A)

37、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) none of the aboveAnswer: D Difficulty: EasyRationale: When an investor can create a zero-investment portfolio (by us

38、ing none of the investors own funds) with a possibility of a positive profit, a risk-free arbitrage opportunity exists.28. An investor will take as large a position as possible when an equilibrium price relationship is violated. This is an example of .A) a dominance argumentB) the mean-variance effi

39、ciency frontierC) a risk-free arbitrageD) the capital asset pricing modelE) none of the aboveAnswer: C Difficulty: ModerateRationale: When the equilibrium price is violated, the investor will buy the lower priced asset and simultaneously place an order to sell the higher priced asset. Such transacti

40、ons result in risk-free arbitrage. The larger the positions, the greater the riskfree arbitrage profits.29. The APT differs from the CAPM because the APT .A) places more emphasis on market riskB) minimizes the importance of diversificationC) recognizes multiple unsystematic risk factorsD) recognizes

41、 multiple systematic risk factorsE) none of the aboveAnswer: D Difficulty: ModerateRationale: The CAPM assumes that market returns represent systematic risk. The APT recognizes that other macroeconomic factors may be systematic risk factors.30. The feature of the APT that offers the greatest potenti

42、al advantage over the CAPM is the .A) use of several factors instead of a single market index to explain the risk-return relationshipB) identification of anticipated changes in production, inflation and term structure as key factors in explaining the risk-return relationshipC) superior measurement o

43、f the risk-free rate of return over historical time periodsD) variability of coefficients of sensitivity to the APT factors for a given asset over timeE) none of the aboveAnswer: A Difficulty: EasyRationale: The advantage of the APT is the use of multiple factors, rather than a single market index,

44、to explain the risk-return relationship. However, APT does not identify the specific factors.31. In terms of the risk/return relationshipA) only factor risk commands a risk premium in market equilibrium.B) only systematic risk is related to expected returns.C) only nonsystematic risk is related to e

45、xpected returns.D) A and B.E) A and C.Answer: D Difficulty: EasyRationale: Nonfactor risk may be diversified away; thus, only factor risk commands a risk premium in market equilibrium. Nonsystematic risk across firms cancels out in well-diversified portfolios; thus, only systematic risk is related t

46、o expected returns.32. The following factors might affect stock returns:A) the business cycle.B) interest rate fluctuations.C) inflation rates.D) all of the above.E) none of the above.Answer: D Difficulty: EasyRationale: A, B, and C all are likely to affect stock returns.33. Advantage(s) of the APT

47、is(are)A) that the model provides specific guidance concerning the determination of the risk premiums on the factor portfolios.B) that the model does not require a specific benchmark market portfolio.C) that risk need not be considered.D) A and B.E) B and C.Answer: B Difficulty: EasyRationale: The A

48、PT provides no guidance concerning the determination of the risk premiums on the factor portfolios. Risk must be considered in both the CAPM and APT. A major advantage of APT over the CAPM is that a specific benchmark market portfolio is not required.34. Portfolio A has expected return of 10% and st

49、andard deviation of 19%. Portfolio B has expected return of 12% and standard deviation of 17%. Rational investors willA) Borrow at the risk free rate and buy A.B) Sell A short and buy B.C) Sell B short and buy A.D) Borrow at the risk free rate and buy B.E) Lend at the risk free rate and buy B.Answer

50、: B Difficulty: EasyRationale: Rational investors will arbitrage by selling A and buying B.35. An important difference between CAPM and APT isA) CAPM depends on risk-return dominance; APT depends on a no arbitrage condition.B) CAPM assumes many small changes are required to bring the market back to

51、equilibrium; APT assumes a few large changes are required to bring the market back to equilibrium.C) implications for prices derived from CAPM arguments are stronger than prices derived from APT arguments.D) all of the above are true.E) both A and B are true.Answer: E Difficulty: DifficultRationale:

52、 Under the risk-return dominance argument of CAPM, when an equilibrium price is violated many investors will make small portfolio changes, depending on their risk tolerance, until equilibrium is restored. Under the no-arbitrage argument of APT, each investor will take as large a position as possible

53、 so only a few investors must act to restore equilibrium. Implications derived from APT are much stronger than those derived from CAPM, making C an incorrect statement.36. A professional who searches for mispriced securities in specific areas such as mergertarget stocks, rather than one who seeks st

54、rict (risk-free) arbitrage opportunities is engaged inA) pure arbitrage.B) risk arbitrage.C) option arbitrage.D) equilibrium arbitrage.E) none of the above.Answer: B Difficulty: ModerateRationale: Risk arbitrage involves searching for mispricings based on speculative information that may or may not

55、materialize.37. In the context of the Arbitrage Pricing Theory, as a well-diversified portfolio becomes larger its nonsystematic risk approachesA) one.B) infinity.C) zero.D) negative one.E) none of the above.Answer: C Difficulty: EasyRationale: As the number of securities, n, increases, the nonsyste

56、matic risk of a well- diversified portfolio approaches zero.38. A well-diversified portfolio is defined asA) 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 least three different industry sec

57、tors.C) a portfolio whose factor beta equals 1.0.D) a portfolio that is equally weighted.E) all of the above.Answer: A Difficulty: ModerateRationale: A well-diversified portfolio is one that contains a large number of securities, each having a small (but not necessarily equal) weight, so that nonsystematic variance is negligible.39. The APT requires a benchmark portfolioA) that is equal to the true market portfolio.B) that contains all securities in proportion to their market values.C) that need not be wel