投资学第7版Test Bank答案10

Multiple Choice Questions1._ a relationship between expected return and risk. A)APT stipulates B)CAPM stipulates C)Both CAPM and APT stipulate D)Neither CAPM nor APT stipulate E)No pricing model has found Answer: C Difficulty: Easy Rationale: Both models attempt to explain asset pricing based on risk/return relationships.2.Which pricing model provides no guidance concerning the determination of the risk premium on factor portfolios? A)The CAPM B)The multifactor APT C)Both the CAPM and the multifactor APT D)Neither the CAPM nor the multifactor APT E)None of the above is a true statement. Answer: B Difficulty: Moderate Rationale: 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 investor can construct a _ investment portfolio that will yield a sure profit. A)positive B)negative C)zero D)all of the above E)none of the above Answer: C Difficulty: Easy Rationale: If the investor can construct a portfolio without the use of the investors own funds and the portfolio yields a positive profit, arbitrage opportunities exist.4.The APT was developed in 1976 by _. A)Lintner B)Modigliani and Miller C)Ross D)Sharpe E)none of the above Answer: C Difficulty: Easy Rationale: Ross developed this model in 1976.5.A _ portfolio is a well-diversified portfolio constructed to have a beta of 1 on one of the factors and a beta of 0 on any other factor. A)factor B)market C)index D)A and B E)A, B, and C Answer: A Difficulty: Easy Rationale: 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 economic profits may be earned is called _. A)arbitrage B)capital asset pricing C)factoring D)fundamental analysis E)none of the above Answer: A Difficulty: Easy Rationale: Arbitrage is earning of positive profits with a zero (risk-free) investment.7.In developing the APT, Ross assumed that uncertainty in asset returns was a result of A)a common macroeconomic factor B)firm-specific factors C)pricing error D)neither A nor B E)both A and B Answer: E Difficulty: Moderate Rationale: Total risk (uncertainty) is assumed to be composed of both macroeconomic and firm-specific factors.8.The _ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _ implies that this relationship holds for all but perhaps a small number of securities. A)APT, CAPM B)APT, OPM C)CAPM, APT D)CAPM, OPM E)none of the above Answer: C Difficulty: Moderate Rationale: The CAPM is an asset-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%. Portfolio 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 portfolio _. A)A, A B)A, B C)B, A D)B, B E)A, the riskless asset Answer: C Difficulty: Moderate Rationale: 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-free 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 portfolio _. A)A, A B)A, B C)B, A D)B, B E)none of the above Answer: C Difficulty: Moderate Rationale: A: 13% = 10% + 0.2F; F = 15%; B: 15% = 10% + 0.4F; 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)6.0% C)7.3% D)10.1% E)none of the above Answer: C Difficulty: Moderate Rationale: 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-diversified portfolio is approximately _. A)0.80 B)1.13 C)1.25 D)1.56 E)none of the above Answer: B Difficulty: Moderate Rationale: (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 has a beta of 1.0. If arbitrage opportunities are ruled out, stock A has a beta of _. A)0.67 B)1.00 C)1.30 D)1.69 E)none of the above Answer: E Difficulty: Moderate Rationale: 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. 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 above Answer: D Difficulty: Difficult Rationale: 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 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 above Answer: C Difficulty: Moderate Rationale: 7% + 0.75(1%) + 1.25(7%) = 16.5%.16.Consider the multifactor APT with two factors. The risk premiums 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 above Answer: C Difficulty: Moderate Rationale: 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-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)-$1,000 B)$0 C)$1,000 D)$2,000 E)none of the above Answer: C Difficulty: Moderate Rationale: $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 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 above Answer: B Difficulty: Moderate Rationale: A: 19% = rf + 1(F); B: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 A has a beta on factor 2 of _. A)1.33 B)1.50 C)1.67 D)2.00 E)none of the above Answer: C Difficulty: Moderate Rationale: 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%. Portfolio A has a beta of 0.7. If arbitrage opportunities are ruled out, portfolio B must have a beta of _. A)0.45 B)1.00 C)1.10 D)1.22 E)none of the above Answer: C Difficulty: Moderate Rationale: A: 14% = 7% + 0.7F; F = 10; B: 18% = 7% + 10b; b = 1.10.Use the following to answer questions 21-24:There 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 states 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 above Answer: D Difficulty: Easy Rationale: E(Rp) = 0.5(17%) + 0.5(15%) = 16%.22.If you 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 above Answer: B Difficulty: Easy Rationale: 0.5(39%) + 0.5(6%) = 22.5%.23.If you invested in an equally weighted portfolio of stocks 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 above Answer: D Difficulty: Easy Rationale: 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 long position in an equally weighted portfolio of _. A)A, B and C B)B, A and C C)C, A and B D)A and B, C E)none of the above, none of the above Answer: C Difficulty: Difficult Rationale: E(RA) = (39% + 17% - 5%)/3 = 17%; E(RB) = (30% + 15% + 0%)/3 = 15%; E(RC) = (22% + 14% + 6%)/3 = 14%; E(RP) = -0.5(14%) + 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, F1 and F2. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios:25.Assuming no arbitrage opportunities exist, the risk premium on the factor F1 portfolio should be _. A)3% B)4% C)5% D)6% E)none of the above Answer: A Difficulty: Difficult Rationale: 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 = 3%.26.Assuming no arbitrage opportunities exist, the risk premium on the factor F2 portfolio should be _. A)3% B)4% C)5% D)6% E)none of the above Answer: C Difficulty: Difficult Rationale: See solution to previous problem.27.A zero-investment portfolio with a positive expected return arises when _. A)an investor has downside risk only B)the law of prices is not violated C)the opportunity set is not tangent to the capital allocation line D)a risk-free arbitrage opportunity exists E)none of the above Answer: D Difficulty: Easy Rationale: When an investor can create a zero-investment portfolio (by using 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 argument B)the mean-variance efficiency frontier C)a risk-free arbitrage D)the capital asset pricing model E)none of the above Answer: C Difficulty: Moderate Rationale: 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 transactions result in risk-free arbitrage. The larger the positions, the greater the risk-free arbitrage profits.29.The APT differs from the CAPM because the APT _. A)places more emphasis on market risk B)minimizes the importance of diversification C)recognizes multiple unsystematic risk factors D)recognizes multiple systematic risk factors E)none of the above Answer: D Difficulty: Moderate Rationale: 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 potential advantage over the CAPM is the _. A)use of several factors instead of a single market index to explain the risk-return relationship B)identification of anticipated changes in production, inflation and term structure as key factors in explaining the risk-return relationship C)superior measurement of the risk-free rate of return over historical time periods D)variability of coefficients of sensitivity to the APT factors for a given asset over time E)none of the above Answer: A Difficulty: Easy Rationale: The advantage of the APT is the use of multiple factors, rather than a single market index, to explain the risk-return relationship. However, APT does not identify the specific factors.31.In terms of the risk/return relationship A)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 expected returns. D)A and B. E)A and C. Answer: D Difficulty: Easy Rationale: 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 to 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: Easy Rationale: A, B, and C all are likely to affect stock returns.33.Advantage(s) of the APT 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: Easy Rationale: The APT provides no guidance concerning the determination of the risk premiums on the factor portfolios. Risk must 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 standard deviation of 19%. Portfolio B has expected return of 12% and standard deviation of 17%. Rational investors will A)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: B Difficulty: Easy Rationale: Rational investors will arbitrage by selling A and buying B.35.An important difference between CAPM and APT is A)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 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: Difficult Rationale: 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 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 merger-target stocks, rather than one who seeks strict (risk-free) arbitrage opportunities is engaged in A)pure arbitrage. B)risk arbitrage. C)option arbitrage. D)equilibrium arbitrage. E)none of the above. Answer: B Difficulty: Moderate Rationale: Risk arbitrage involves searching for mispricings based on speculative information that may or may not materialize