1、Chapter 09 Test Bank - StaticStudent: _Multiple Choice Questions1. In the context of the Capital Asset Pricing Model (CAPM), the relevant measure of risk isA. unique risk.B. beta.C. standard deviation of returns.D. variance of returns.2. In the context of the Capital Asset Pricing Model (CAPM), the
2、relevant risk isA. unique risk.B. systematic risk.C. standard deviation of returns.D. variance of returns.3. In the context of the Capital Asset Pricing Model (CAPM), the relevant risk isA. unique risk.B. market risk.C. standard deviation of returns.D. variance of returns.4. According to the Capital
3、 Asset Pricing Model (CAPM), a well diversified portfolios rate of return is a function ofA. market risk.B. unsystematic risk.C. unique risk.D. reinvestment risk.E. None of the options are correct.5. According to the Capital Asset Pricing Model (CAPM), a well diversified portfolios rate of return is
4、 a function ofA. beta risk.B. unsystematic risk.C. unique risk.D. reinvestment risk.E. None of the options are correct.6. According to the Capital Asset Pricing Model (CAPM), a well diversified portfolios rate of return is a function ofA. systematic risk.B. unsystematic risk.C. unique risk.D. reinve
5、stment risk.7. The market portfolio has a beta ofA. 0.B. 1.C. 1.D. 0.5.8. The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According to the capitalasset pricing model (CAPM), the expected rate of return on security X with a beta of 1.2 is equal toA. 0.06.B.
6、0.144.C. 0.12.D. 0.132.E. 0.18.9. 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 toA. 0.142.B. 0.144.C. 0.153.D. 0.134.E. 0.117.10
7、. Which statement is not true regarding the market portfolio?A. It includes all publicly-traded financial assets.B. It lies on the efficient frontier.C. All securities in the market portfolio are held in proportion to their market values.D. It is the tangency point between the capital market line an
8、d the indifference curve.E. All of the options are true.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) I
9、t is the tangency point between the capital market line and the indifference curve.A. I onlyB. II onlyC. III onlyD. IV onlyE. I, II, and III12. Which statement is not true regarding the capital market line (CML)?A. The CML is the line from the risk-free rate through the market portfolio.B. The CML i
10、s the best attainable capital allocation line.C. The CML is also called the security market line.D. The CML always has a positive slope.E. The risk measure for the CML is standard deviation.13. Which statement is true regarding the capital market line (CML)?I) The CML is the line from the risk-free
11、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.A. I onlyB. II onlyC. III onlyD. IV onlyE. I, II, and IV14. The market risk, beta, of a security is equal toA. the
12、 covariance between the securitys return and the market return divided by the variance of the marketsreturns.B. the covariance between the security and market returns divided by the standard deviation of the marketsreturns.C. the variance of the securitys returns divided by the covariance between th
13、e security and market returns.D. the variance of the securitys returns divided by the variance of the markets returns.15. According to the Capital Asset Pricing Model (CAPM), the expected rate of return on any security is equal toA. r f + E(r M).B. r f + E(r M) r f .C. E(rM) r f .D. E(r M) + r f .16
14、. The security market line (SML) isA. the line that describes the expected return-beta relationship for well-diversified portfolios only.B. also called the capital allocation line.C. the line that is tangent to the efficient frontier of all risky assets.D. the line that represents the expected retur
15、n-beta relationship.E. All of the options.17. According to the Capital Asset Pricing Model (CAPM), fairly-priced securities haveA. positive betas.B. zero alphas.C. negative betas.D. positive alphas.18. According to the Capital Asset Pricing Model (CAPM), underpriced securities haveA. positive betas.
16、B. zero alphas.C. negative betas.D. positive alphas.E. None of the options are correct.19. According to the Capital Asset Pricing Model (CAPM), overpriced securities haveA. positive betas.B. zero alphas.C. negative alphas.D. positive alphas.20. According to the Capital Asset Pricing Model (CAPM), a
17、security with aA. positive alpha is considered overpriced.B. zero alpha is considered to be a good buy.C. negative alpha is considered to be a good buy.D. positive alpha is considered to be underpriced.21. According to the Capital Asset Pricing Model (CAPM), which one of the following statements is
18、false?A. The expected rate of return on a security increases in direct proportion to a decrease in the risk-free rate.B. The expected rate of return on a security increases as its beta increases.C. A fairly priced security has an alpha of zero.D. In equilibrium, all securities lie on the security ma
19、rket line.E. All of the statements are true.22. In a well-diversified portfolio,A. market risk is negligible.B. systematic risk is negligible.C. unsystematic risk is negligible.D. nondiversifiable risk is negligible.23. Empirical results regarding betas estimated from historical data indicate that b
20、etasA. are constant over time.B. are always greater than one.C. are always near zero.D. appear to regress toward one over time.E. are always positive.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-freerate is 0.05 and the market ex
21、pected rate of return is 0.09. According to the Capital Asset Pricing Model, thissecurity isA. underpriced.B. overpriced.C. fairly priced.D. Cannot be determined from data provided.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 of
22、fer a rate of return of 12%, you shouldA. buy the stock because it is overpriced.B. sell short the stock because it is overpriced.C. sell the stock short because it is underpriced.D. buy the stock because it is underpriced.E. None of the options, as the stock is fairly priced.26. You invest $600 in
23、a security with a beta of 1.2 and $400 in another security with a beta of 0.90. The beta of theresulting portfolio isA. 1.40.B. 1.00.C. 0.36.D. 1.08.E. 0.80.27. 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
24、0.05. The alpha of the stock isA. 1.7%.B. 1.7%.C. 8.3%.D. 5.5%.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 isA. unde
25、rpriced.B. overpriced.C. fairly priced.D. Cannot be determined from data provided.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 0.04and the market expected rate of return is 0.115. According to the Capital Asset Pricing Model, thi
26、s security isA. underpriced.B. overpriced.C. fairly priced.D. Cannot be determined from data provided.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
27、 Pricing Model, this security isA. underpriced.B. overpriced.C. fairly priced.D. Cannot be determined from data provided.E. None of the options are correct.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 expect
28、ed rate of return is 0.10. According to the Capital Asset Pricing Model, this security isA. underpriced.B. overpriced.C. fairly priced.D. Cannot be determined from data provided.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 0.0
29、4 and the market expected rate of return is 0.10. According to the Capital Asset Pricing Model, this security isA. underpriced.B. overpriced.C. fairly priced.D. Cannot be determined from data provided.33. Your opinion is that Boeing has an expected rate of return of 0.08. It has a beta of 0.92. The
30、risk-free rate is 0.04and the market expected rate of return is 0.10. According to the Capital Asset Pricing Model, this security isA. underpriced.B. overpriced.C. fairly priced.D. Cannot be determined from data provided.34. As a financial analyst, you are tasked with evaluating a capital-budgeting
31、project. You were instructed to use theIRR method, and you need to determine an appropriate hurdle rate. The risk-free rate is 4%, and the expectedmarket rate of return is 11%. Your company has a beta of 1.0, and the project that you are evaluating is consideredto have risk equal to the average proj
32、ect that the company has accepted in the past. According to CAPM, theappropriate hurdle rate would beA. 4%.B. 7%.C. 15%.D. 11%.E. 1%.35. As a financial analyst, you are tasked with evaluating a capital-budgeting project. You were instructed to use theIRR method, and you need to determine an appropri
33、ate hurdle rate. The risk-free rate is 4%, and the expectedmarket rate of return is 11%. Your company has a beta of 1.4, and the project that you are evaluating is consideredto have risk equal to the average project that the company has accepted in the past. According to CAPM, theappropriate hurdle
34、rate would beA. 13.8%.B. 7%.C. 15%.D. 4%.E. 1.4%.36. As a financial analyst, you are tasked with evaluating a capital-budgeting project. You were instructed to use theIRR method, and you need to determine an appropriate hurdle rate. The risk-free rate is 4%, and the expectedmarket rate of return is
35、11%. Your company has a beta of 0.75, and the project that you are evaluating isconsidered to have risk equal to the average project that the company has accepted in the past. According toCAPM, the appropriate hurdle rate would beA. 4%.B. 9.25%.C. 15%.D. 11%.E. 0.75%.37. As a financial analyst, you
36、are tasked with evaluating a capital-budgeting project. You were instructed to use theIRR method, and you need to determine an appropriate hurdle rate. The risk-free rate is 4%, and the expectedmarket rate of return is 11%. Your company has a beta of 0.67, and the project that you are evaluating isc
37、onsidered to have risk equal to the average project that the company has accepted in the past. According toCAPM, the appropriate hurdle rate would beA. 4%.B. 8.69%.C. 15%.D. 11%.E. 0.75%.38. As a financial analyst, you are tasked with evaluating a capital-budgeting project. You were instructed to us
38、e theIRR method, and you need to determine an appropriate hurdle rate. The risk-free rate is 5%, and the expectedmarket rate of return is 10%. Your company has a beta of 0.67, and the project that you are evaluating isconsidered to have risk equal to the average project that the company has accepted
39、 in the past. According toCAPM, the appropriate hurdle rate would beA. 10%.B. 5%.C. 8.35%.D. 28.35%.E. 0.67%.39. The risk-free rate is 4%. The expected market rate of return is 11%. If you expect CAT with a beta of 1.0 to offer a rate of return of 10%, you shouldA. buy CAT because it is overpriced.B
40、. sell short CAT because it is overpriced.C. sell short CAT because it is underpriced.D. buy CAT because it is underpriced.E. None of the options, as CAT is fairly priced.40. The risk-free rate is 4%. The expected market rate of return is 11%. If you expect CAT with a beta of 1.0 to offer a rate of
41、return of 11%, you shouldA. buy CAT because it is overpriced.B. sell short CAT because it is overpriced.C. sell short CAT because it is underpriced.D. buy CAT because it is underpriced.E. None of the options, as CAT is fairly priced.41. The risk-free rate is 4%. The expected market rate of return is
42、 11%. If you expect CAT with a beta of 1.0 to offer a rate of return of 13%, you shouldA. buy CAT because it is overpriced.B. sell short CAT because it is overpriced.C. sell short CAT because it is underpriced.D. buy CAT because it is underpriced.E. None of the options, as CAT is fairly priced.42. Y
43、ou invest 55% of your money in security A with a beta of 1.4 and the rest of your money in security B with a beta of 0.9. The beta of the resulting portfolio isA. 1.466.B. 1.157.C. 0.968.D. 1.082.E. 1.175.43. Given are the following two stocks A and B: If the expected market rate of return is 0.09,
44、and the risk-free rate is 0.05, which security would be considered thebetter buy, and why?A. A because it offers an expected excess return of 1.2%.B. B because it offers an expected excess return of 1.8%.C. A because it offers an expected excess return of 2.2%.D. B because it offers an expected retu
45、rn of 14%.E. B because it has a higher beta.44. Capital asset pricing theory asserts that portfolio returns are best explained byA. reinvestment risk.B. specific risk.C. systematic risk.D. diversification.45. According to the CAPM, the risk premium an investor expects to receive on any stock or port
46、folio increasesA. directly with alpha.B. inversely with alpha.C. directly with beta.D. inversely with beta.E. in proportion to its standard deviation.46. What is the expected return of a zero-beta security?A. The market rate of returnB. Zero rate of returnC. A negative rate of returnD. The risk-free rate47. Standard deviation and beta both measure risk, but they are different in that beta measuresA. both systematic and unsystematic risk.B. only systematic risk, while standard deviation is a measure of total risk.C. only unsystematic risk, while standard deviation is a measure of total risk.
