v3 frm一级百题part 1巅峰风险管理基础定量分析

D.DeviationsfromabenarkAnswer:Marketriskistheriskoflossesfrommovementsinmarketprices.Absoluteriskmeasuresthesechangesintermsofthevolatilityoftotalreturns.Trackingerrorisarelativemeasureofmarketriskdefinedasthedeviationfromabenarkindex.Correlationreferstoabenark.Deviationfromthebenarkindexisaconsiderationinmeasuringrelativerisk.JenniferDurrantisevaluatingtheexistingriskmanagementsystemofSilvermanAssetManagement.Sheisaskedtomatchthefollowingeventstothecorrespondingtypeofrisk.Identifyeachnumberedeventasamarketrisk,creditrisk,operationalrisk,orlegalriskevent.InsufficienttrainingleadstomisuseofordermanagementCreditspreadswidenfollowingrecentOptionwriterdoesnothavetheresourcesrequiredtohonoraCreditswapswithcounterpartycannotbtedbecausetheyoriginatedinmultiple1:legalrisk.2:creditrisk.3:operationalrisk.4:credit1:operationalrisk.2:creditrisk.3:operationalrisk.4:legal1:operationalrisk.2:marketrisk.3:creditrisk.4:legal1:operationalrisk.2:marketrisk.3:operationalrisk.4:legalAnswer:AninsufficienttrainingleadtomisuseofordermanagementsystemisanexampleofoperationalWideningofcreditspreadsrepresentsanreaseinmarketAnoptionwriternothonoringtheobligationinacontractisacreditriskWhenacontractisoriginatedinmultiplejurisdictionsleadingtoproblemswithenability,thereislegalrisk.KeyKeyPoint:SystematicRiskandUnsystematicWhichofthefollowingstatementsaboutportfolioriskanddiversificationisleastNotallriskisUnsystematicriskcanbesubstantiallyreducedbySystematicriskcanbeeliminatedbyholdingsecuritiesinawell-diversifiedinternationalstockportfolio.NoneofAnswer:Systematicriskcannotbeeliminatedbydiversification.Unsystematicriskcanbereducedbydiversification.Diversificationbenefitswilloccuranytimesecurityreturnshavelessthanperfectpositivecorrelations.KeyKeyPoint:EnterpriseRiskManagement: entivestoEachofthefollowingistrueexceptProbabilistic ludesensitivityysis,scenarioysisandAsimulationallowsforthedeepestassessmentofuncertaintybecauseitletsystsspecifydistributionsofvaluesratherthanasingleexpectedvalueforeachinput.Certainty-equivalentvalueisthevalueatrisk(VaR)ofarisk-adjustedTheoutputofasimulationcanusedtogenerateavalueatriskAnswer:Thisstatementdoesnotmakesense.InregardtoA,BandD,eachisInregardtoD,thisisimportantlytrueasitillustratesthecompatibilityofsimulationVaR:theoutputofasimulationisadistribution,whichisaninputintovalueatrisk,VaR;ormorespecifically,VaRisaleofthedistribution. Riskappetiteistheamountofrisk,onabroadlevel,anentityiswillingtoacceptinpursuitofvalue.Itreflectstheentity‟sriskmanagementphilosophy,andinturninfluencestheentity‟scultureandoperatingWhichofthefollowingtasksregardingriskappetitewouldbereasonablyperformedbyanorganization'sBoardofDirectors?Developtheorganization'sriskappetiteDetermineiftheriskappetitemaycauserisksinotherareasoftheIIIBothIandNeitherInorAnswer:Develotheorganization'sriskappetitestatementistheresponsibilityofmanagement.ItistheBoard'sroletoreviewandprovideappropriatefeedbackonmanagement'sworkwithregardtotheriskappetitestatement.Determiningiftheriskappetitemaycauserisksinotherareasoftheorganizationisconsistentwithth'soversightrole.WhichofthefollowingstatementsregardingriskappetiteandrisktoleranceisRiskappetitedirectlyimpactstheallocationofRisktoleranceisameasureofanorganization'sabilitytotakeIIIBothIandNeitherInorRiskappetitedirectlyimpactstheallocationofresources.Risktoleranceisameasureofanorganization'swillingnesstotakerisk.Agrowingregionahasaddedariskcommitteetoitsboard.Oneofthefirst oftheriskcommitteeisthatthebankshoulddevelopariskappetitestatement.Whatbestrepresentsaprimaryfunctionofariskappetitestatement?TofythelevelofvariabilityforeachriskmetricthatafirmiswillingtoTostatespecificnewbusinessopportunitiesthatafirmiswillingtoToassignriskmanagementresponsibilitiestospecificinternalstaffTostateabroadlevelofacceptablerisktoguidetheallocationofthefirm‟sAnswer:Ariskappetitestatementstatesabroadlevelofriskacrosstheorganizationthefirmiswillingtoacceptinordertopursuevaluecreation.Thestatementistypicallybroadlyarticulatedandcanbecommunicatedacrosstheorganization,andhelpstoallocateresourcestospecificobjectivesatthefirm.KeyKeyPoint:RiskTherearefourpossibilitiesformanagingRiskavoidance:risksthatarenotcongruentwithRisktransfer:riskRiskreduction:Riskretention:theriskisshouldbeKristaSkujins,FRM,istheCFOofamanufacturingfirm.Sheiscurrentlyintheprocessofdiversifyingthefirm‟sinvestmentportfoliobyvaryingthecorrelationsandassetclassesamongsecurities.Diversificationisbestcharacterizedaswhichofthefollowingrisktreatments?RiskRiskRiskRiskAnswer:DiversificationisariskreductionKeyKeyPoint:DataKeyKeyDimensionsofDataWhichofthefollowingdataissuesisleastlikely reaseriskforanDuplicateDataNonstandardDataAnswer:Datanormalizationisaprocesstobetterorganizedatainordertominimizeredundancyanddependencysoitisleastlikelytoreaserisk.Alloftheotherdataissuesarelikelytoreaserisk,especiallycomplexdatatransformations.Ariskystisreconcilingcustomeraccountdataheldintwoseparatedatabasesandwantstoensuretheaccountnumberforeachcustomeristhesameineachdatabase.Whichdimensionofdataqualitywouldshebemostconcernedwithinmakingthiscomparison?Answer:Consistencyreferstothecomparisonofoneelementofdataacrosstwoormoredifferentharacterizingvariousdimensionsofabank'sdata,theBaselCommitteehassuggestedseveralpriplestopromotestrongandeffectiveriskdataaggregationcapabilities.Whichstatementcorrectlydescribesa mendationwhichthebankshouldfollowinaccordancewiththegivenTheintegritypriple mendsthatdataaggregationshouldbecompleyautomatedwithoutanyintervention.Thecompletenesspriple mendsthatafinancialinstitutionshouldcapturedataonitsentireuniverseofmaterialriskexposures.Theadaptabilitypriple mendsthatabankshouldfrequentlyupdateitsriskreportingsystemstoorporatechangesinbestpractices.Theaccuracypriple mendsthattheriskdatabereconciledwithmanagement'sestimatesofriskexposurepriortoaggregation.Answer:Thecompletenesspr mendsthatabankbeabletocaptureandaggregatealldataonthematerialriskstowhichiti posedacrosstheorganization.Thiswillallowittoidentifyandreportriskexposures,concentrations,andsetexposurelimits.ValueatRiskKeyPoint:RiskManagementDanielleMarquisisatativeystwhoworksfora thatexperiencesrisksinasequentialmannerinthatinformationobtainedinearlierstepshelpstomakterestimatesof es.WhichofthefollowingriskmanagementtoolsshouldMarquisconsiderinherDecisionScenarioSensitivityDecisiontreesdependonasuccessful einonestepbeforemovingontothenextstep.Sensitivityysisinvolveschangingonevariableatatime.Scenarioysisestimates esandvaluesunderseveralpossiblefixturescenarios.Simulationisacomplextoolthatlooksatdistributionsofvalues.TheThecommitteewithinofDirectorshouldhaveacceptable,desirable,andpracticessurroundingtheestablishmentoftheKeyPoint:Corporate ernanceItspurpose,composition,membershipqualifications,committeechair,appointment,remuneration,meetings,attendanceandnotice,reportingtotheBoardandshareholders,evaluation,authorityandresources,responsibilitiesinvolvingpoliciesandprocedures,andresponsibilitiesinvolvingspecificriskWhichofthefollowingstatementsregardingcorporateriskernanceisManagementoftheorganizationisultimayresponsibleforriskAriskcommitteeisusefulforenforcingthefirm‟sriskernanceprEffectiveriskernancerequiresmultiplelevelsofaccountabilityandThepointofriskernanceistominimizetheamountofrisktakenbytheAnswer:ThofDirectorsisultimayresponsibleforriskoversight.Effectiveriskernancesimplyrequiresclearaccountability;authority;andmethodsofcommunication;itisnotnecessarytohavemultiplelevels.Thepointofriskernanceistoconsiderthemethodsinwhichrisk-takingispermitted,optimized,andmonitored;itisnotnecessarilytominimizetheamountofrisktaken.Therealpointofriskernanceistoreasethevalueoftheorganizationfromtheoftheshareholdersand/orstakeholders.Firmscommonlyentivizetheirmanagementtoreasethefirm‟svaluebygrgmanagerssecuritiestiedtothefirm‟sstock.Somesecurities,however,canreducemanagerialentivestomanageriskwithinthefirm.Whichislikelythebestexampleofthistypeofsecurity?Deepin-the-moneycalloptiononthefirm‟sAt-the-moneycalloptiononthefirm‟sDeepout-of-the-moneycalloptiononthefirm‟sAnswer:Deepout-of-the-moneycallshavenovalueunlessthefirmvaluereasessubstantially,soprovidingdeepout-of-the-moneycallsasanentivecouldcausemanagerstotakesubstantiallyhigherrisksandperform,lesshedging,Withanat-the-moneycall,managerscouldstillbeentivizedtotakegreaterrisksbuttheywouldnothavetoaimforaslargeofastockpricereasetorecognizesignificantvaluefromtheiroptions,sothedangerofmismanagingriskisless.Adeepin-the-moneycallwouldhaveasimilarinvestmentprofileasalongequitypositionandbothofthelatterchoiceswouldprovidetheleast entivetoreduceriskmanagement.Whichofthefollowingisnotnecessarilyconsideredafailureofriskorrectmeasurementofknown ommunicatingriskissuestotopFailuretominimizelossesoncreditFailuretouseappropriateriskAnswer:Afailuretominimizelossesoncreditportfoliosisnotnecessarilyafailureofriskmanagement.Thefirmmayhaveusedprudentriskmanagementanddecidedthatthepotentialrewardsfromenteringintothecreditagreementsadequa ycompensatedthefirmfortheriskstaken.Itcouldalsohaveignoredtheadviceofitsriskmanagerstoattempttominimizeitscreditlosses.Eitherway,thisisnotnecessarilyafailureofriskmanagement.Expectedreturnandvolatilityofatwo-assetCapitalMarketLine PCML:E(R)=R+E(RM)-Rf P CapitalAssetPricingModel(CAPM)InvestorsfacenotransactioncostswhentradingAssetsare yTherearenotaxes;therefore,investorsareindifferentbetweencapitalgainsand eorInvestorsarepricetakerswhoseindividualbuyandselldecisionshavenoeffectonassetInvestor‟sutilityfunctionsarebasedsolelyonexpectedportfolioreturnandUnlimitedshort-sellingisInvestorscanborrowandlendunlimitedamountsatthe One-periodhorizon pectationsabouttheexpectedreturns,Allassetsare ludinghuman E(R)=R+[E(R)-R],(=Covi,M=i Calculating SecurityMarketLine11-ComparingComparingtheCMLandtheAccordingtotheCapitalAssetPricingModel(CAPM),overasingletimeperiod,investorsseektoizetheir:WealthandareconcernedaboutthetailsofreturnWealthandarenotconcernedaboutthetailsofreturnExpectedutilityandareconcernedaboutthetailsofreturnExpectedutilityandarenotconcernedaboutthetailsofreturnAnswer:CAPMassumesinvestorsseektoizetheexpectedutilityoftheirwealthatoftheperiod,andthatwhenchoosingtheirportfolios,investorsonlyconsiderthefirsttwomomentsofreturndistribution:theexpectedreturnandthevariance.Hence,investorsarenotconcernedwiththetailsofthereturndistribution.UsethefollowingdatatoanswerQuestions15andAssumetheexpectedreturnonstocksis18%(representedbyZinthefigure),andtheexpectedreturnonbondsis8%(representedbypointYonthegraph).Thegraphshowstheportfoliopossibilitiescurveforstocksandbonds.Thepointonthegraphthatmostlikelyrepresentsa90%allocationinstocksanda10%allocationinbondsisPortfolio:WYSethereturntoWisthenearesttoZ(stocks),itislogicaltoassumethatpointWrepresentsanallocationof90%stocks/10%bonds.ThereturnforWislowerthanZ,butitalsorepresentsareductioninrisk.Theefficientfrontierconsistsoftheportfoliosbetween XandYandXandYandAnswer:Theefficientfrontierconsistsofportfoliosthathavethe umexpectedreturnforanygivenlevelofrisk(standarddeviationorvariance).Theefficientfrontierstartsattheglobalminimum-varianceportfolioandcontinuesaboveit.Anyportfoliobelowtheefficientfrontierisdominatedbyaportfolioontheefficientfrontier.Thisisbecauseefficientportfolioshavehigherexpectedreturnsforthesamelevelofrisk.UsethefollowinggraphtoanswerQuestion18andPortfolioPinthemeanvarianceysisrepresentsthetangencypointbetweenthecapitalmarketlineandtheportfoliopossibilitiescurve.Inthisysis,themarketpriceofriskwouldbethe:StandarddeviationofPortfolioExpectedreturnontheminimum-varianceslopeofthelineconnectingT-billsandPortfolioPointatwhichthestraightlineintersectstheexpectedreturnAnswer:TheCMListhelineconnectingT-billsandPortfolioP.ThemarketpriceofriskistheslopeoftheCML.Hadriskbeenmeasuredonthegraphwithbeta,thegraphwouldrepresenttheSML.Themarketpriceofriskwouldstillbetheslopeoftheline.Supposethatthecorrelationofthereturnofaportfoliowiththereturnofitsbenarkis0.8,thevolatilityofthereturnoftheportfoliois5%,andthevolatilityofthereturnofthebenarkis4%.Whatisthaoftheportfolio?Thefollowingequationisusedtocalculat=P=0.80.05 PatriciaFranklinmakesbuyandsellstock mendationsusingthecapitalassetpricingmodel.FranklinhasderivedthefollowinginformationforthebroadmarketandforthestockoftheCostSave(CS):Expectedmarketrisk Historicalbetafor Franklinbelievesthathistoricalbetasdonotprovidegoodforecastsoffutura,andthereforeusesthefollowingformulatoforecastbeta:Forecastedbeta=0.80+0.20historicalAfterconductingathoroughexaminationofmarkettrendsandtheCSfinancialstatements,FranklinpredictsthattheCSreturnwillequal10%.FranklinshouldderivethefollowingrequiredreturnforCSalongwiththefollowingvaluationdecision(undervaluedorovervalued):CAPMrequired Answer:TheCAPMequationis:E(Ri)=RF+iE(RMRF).Franklinforecaststh aforCostSaveasfollows:betaforecast=0.80+0.20(historicalbeta)=0.80+0.20(1.50)=1.10TheCAPMrequiredreturnforCostSaveis:0.05+1.1(0.08)=Notethatthemarketpremium,E(RM)-RF,isprovidedinthequestionFrankiinshoulddecidethatthestockisovervaluedbecausesheforecaststhattheCostSavereturnwillequalonly10%,whereastherequiredreturn(minimumacceptablereturn)is13.8%.Theefficientfrontierisdefinedbythesetofportfoliosthat,foreachvolatilitylevel, izestheexpectedreturn.Accordingtothecapitalassetpricingmodel(CAPM),whichofthefollowingstatementsarecorrectwithrespecttotheefficientfrontier?Thecapitalmarketlineisthestraightfineconnectingtherisk-assetwiththezerobetaminimumvarianceportfolio.Thecapitalmarketlinealwayshasapositiveslopeanditssteepnessdependsonthemarketriskpremiumandthevolatilityofthemarketportfolio.Thecompleteefficientfrontierwithoutarisk-assetcanbeobtainedbycombiningtheminimumvarianceportfolioandthemarketportfolio.Theefficientfrontierallowsdifferentindividualstohavedifferentportfoliosofriskyassetsbasedupontheirownriskaversionandforecastforassetreturns.Theefficientfrontierassumesnotransactioncosts,notaxes,acommoninvestmenthorizonallinvestors,andthatthereturndistributionhasnoii,iiiandi,iiandi,ivandii,iiiandWithinmodernportfoliotheory(MPT),theefficientfrontierisacombinationofassetsthathasthebestpossibleexpectedlevelofreturnforitslevelofrisk.Theefficientfrontieristhepositivelyslopedportionoftheopportunitysetthatoffersthehighestexpectedreturnforagivenrisklevel.Theefficientfrontierisatthetopofthefeasiblesetofportfoliocombinations.ii,iiiandvarecorrectstatements.Thecapitalmarketlineconnectstherisk-assetandthemarketportfolio.Theefficientfrontierdoesallowinvestorstohavedifferentriskaversions,butassumesthattheyallhavethesameforecastforassetreturns.AninvestmentadvisorisyzingtherangeofpotentialexpectedreturnsofanewfunddesignedtoreplicatethedirectionalmovesoftheBSESen Indexbutwithtwicethevolatilityoftheindex.TheSen hasanexpectedannualreturnof12.3%andvolatilityof19.0%,andtheriskrateis2.5%peryear.Assumingthecorrelationbetweenthefund‟sreturnsandthatoftheindexis1,whatistheexpectedreturnofthefundusingthecapitalassetpricingmodel?Answer:IftheCAPMholds, ,whichisizedatthegreatestpossiblvaluewhichimpliesacorrelationof1betweenthefund‟sreturnandtheindexreturn.Sethevolatilityofthefundistwicethatoftheindex,acorrelationof1impliesaumbetaβiof2.Therefore:Ri(max)=2.5%+2*(12.3%-2.5%)=22.1%.KeyKeyPoint:MeasuresofSharpRatio:SPPThemarketportfolio(M)containstheoptimalallocationofonlyriskyassetandnoriskyassets.LettheS1betheSharperatioofthismarketportfolio.Thereexistsarisk-asset.Initially,aninvestorisfully(100%)investedinMwithaportfolioSharperatioofS1.Subsequently,theinvestorborrows30%attherisk-rate,suchthatsheis130%investedinthemarketportfolio(M)wherethisleverageportfoliohasaSharperatioofS2。Aftertheleverage(i.e.,borrowingattherisk-ratetoinvest+30%inM,istheinvestorstillontheefficientfrontierandhowdotheSharperatios?No(nolongerefficient),andNo,butYesandAnswer:Theabilitytoborrowingorlendmorphstheconcave/convexefficientfrontierintothelinearCML;i.e.,theleveragedportfolioisefficientwithhigherriskandhigherreturn.AllportfoliosontheCMLhavethesameSharperatio:theslopeoftheAssumethatyouareonlyconcernedwithsystematicrisk.Whichofthefollowingwouldbethebestmeasuretousetorankorderfundswithdifferentbetasbasedontheirrisk-returnrelationshipwiththemarketportfolio?SharpeSortino Systematicriskofaportfolioisthatriskwhichisinherentinthemarketandthuscannotbediversifiedaway.Inthissituationyoushouldseekameasurewhichranksfundsbasedonsystematicriskonly,whichisreflectedinth P

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*)/MeanAnnualizedRateMeanAnnualizedRateDeviationofabcDuringthesametimeperiodtheaverageannualrateofreturnonthemarketportfoliowas13%withastandarddeviationof19%.Inordertoassesstheportfolioperformanceoftheabovemanagers,youshoulduse:TheTreynormeasureofTheSharpemeasureofTheJensenmeasureofTheSortinomeasureofAnswer:TheTreynormeasureismostappropriateforcomparingwell-diversifiedportfolios.ThatistheTreynormeasureisthebesttocomparetheexcessreturnsperunitofsystematicriskearnedbyportfoliomanagers,providedallportfoliosarewell-diversified.AllthreeportfoliosmanagedbyDonaldsonCapitalManagementareclearlylessdiversifiedthanthemarketportfolio.Standarddeviationofreturnsforeachofthethreeportfoliosishigherthanthestandarddeviationofthemarketportfolio,reflectingalowlevelofdiversification.Jensen‟salphaisthemostappropriatemeasureforcomparingportfoliosthathavethesama.TheSharpemeasurecanbeappliedtoallportfoliosbecauseitusestotalriskanditismorewidelyusedthantheothertwomeasures.Also,theSharperatioevaluatestheportfolioperformancebasedonrealizedreturnsanddiversification.Aless-diversifiedportfoliowillhavehighertotalriskandviceAhigworthinvestorismonitoringtheperformanceofanindextrackingfundinwhichshehasinvested.Theperformancefiguresofthefundandthebenarkportfolioaresummarizedinthetablebelow: arkFundWhatisthetrackingerrorofthefundoverthisAnswer:Relativeriskmeasurskrelativetoabenarkindex,andmeasuresitintermsoftrackingerrorordeviationfromtheindex.Weneedtocalculatethestandarddeviation(squarerootofthevariance)ofthe{0.08,0.04,0.02,0.01,Performthecalculationbycomputingthedifferenceofeachdatapointfromthemean,squaretheresultofeach,taketheaverageofthosevalues,andthentakethesquareroot.Thisisequalto3.04%.FundFund arkAverageexcessStandarddeviationofFundFund arkAverageexcessStandarddeviationofTrackingWhatistheinformationratioforeachfundandwhatconclusioncanbeIRforFundI=0.212,IRforFundII=0.155;FundIIperformedbetsithasalowerIRforFundI=0.212,IRforFundII=0.155;FundIperformedbetsithasahigherIRforFundI=0.248,IRforFundII=0.224;FundIperformedbetsithasahigherIRforFundI=0.248,IRforFundII=0.224;FundIIperformedbetsithasalowerAnswer:Theinformationratiomaybecalculatedbyeitheracomparisonoftheresidualreturntoresidualrisk,ortheexcessreturntotrackingerror.ThehighertheIR,thter„informed‟themanagerisatpickingassetstoinvestin.Seneitherresidualreturnnorriskisgiven,onlythelatterisanoption.ForFundI:IR=0.00073/0.00344=0.212;ForFundII:IR0.00053/0.00341=PortfolioAhasanexpectedreturnof8%,volatilityof20%,andbetaof0.5.Assumethatthemarkethasanexpectedreturnof10%andvolatilityof25%.Alsoassumearisk-rateof5%.WhatisJensen‟salphaforportfolioA?TheJensenmeasureofaportfolio,orJensen‟salpha,iscomputedasPE(RP)RF[E(RM)RF]8%5%0.5(10%5%)Considertwostocks,AandB.Assumetheirannualreturnsarejointlynormallydistributed,themarginaldistributionofeachstockhasmean2%andstandarddeviation10%,andthecorrelationis0.9.WhatistheexpectedannualreturnofstockAiftheannualreturnofstockBisAnswer:E(RA)RF[E(RB)RF2%RF0.9(2%RF)RFE(RA)2%0.9(3%2%)Aportfoliohasanaveragereturnoverthelastyearof13.2%.Itsbenarkhasprovidedanaveragereturnoverthesameperiodof12.3%.Theportfolio‟sstandarddeviationis15.3%,itsbetais1.15,itstrackingerrorvolatilityis6.5%anditssemi-standarddeviationis9.4%.Lastly,therisk-rateis4.5%.Calculatetheportfolio‟sinformationRatio(IR).Answer:IRE(Rp)-E(RB)13.2%12.3%eepMarketportfolio‟ssharpratiois40%,thecorrelationbetweenthemarketportfolioandthestockis0.7,thestock‟ssharpratioisAnswer:E(Ri)

i[E(RM)RfE(Ri)

i[E(RM)Rf

[E(RM)Rf

[E(RM)Rf

M i 0.740% Ariskmanagerisevaluatingaportfolioofequitieswithanannualvolatilityof12.1%peryearthatisbenarkedtotheStraitsTimesIndex.Iftherisk-rateis2.5%peryear,basedontheregressionresultsgiveninthechartbelow,whatistheJensen'salphaoftheportfolio?Answer:TheJensen'salphaisequaltothey-intercept,ortheexcessreturnoftheportfoliowhentheexcessmarketreturniszero.Thereforeitis3.7069%.KeyKeyPoint:APTAPTisageneraltheoryofassetpricingthatholdsthattheexpectedreturnofafinancialassetcanbemodeledasalinearfunctionofvariousmacro-economicfactorsortheoreticalmarketindices,wheresensitivitytochangesineachfactorisrepresentedbyafactor-specificbetacoefficient.E(rj)rfbj1RP1bj2RP2...bjnrj= RPk=riskpremiumofthe APTvs.1）TheAPTdiffersfromtheCAPMinthatitislessrestrictiveinitsassumptions.2）theCAPMcanbeconsidereda"specialcase"oftheAPTinthatthesecuritiesmarketlinerepresentsasingle-factormodeloftheassetprice,changesinvalueoftheaposedWhiletheydemonstratehowexposuretosystematicriskfactorsshouldinfluenceexpectedreturns,theydonotprovidemuchguidanceregardingwithriskfactors,orsourcesofrisk,shouldresultinriskpremiums.APT:noarbitragechance.CAPM:risk-returndominanceWhichofthefollowingisleastlikelytobeoneoftheinpustoamultifactorThemean-varianceefficientmarketFactorDeviationoffactorvaluesfromtheirexpectedThemean-varianceefficientmarketportfolioisessentialtothecapitalassetpricingmodel,butisnotrequiredinmultifactormodels.SupposeanystexaminepectedreturnfortheBroadBand(BBC)baseona2-factormodel.Initially,theexpectedreturnforBBCequals10%.TheystidentifiesGDPand10-yearinterestratesasthetwofactorsforthefactormodel.Assumethefollowingdataisused:GDPgrowthconsensusforecast=6%Interestrateconsensusforecast=3%GDPfactorbetaforBBC=InterestratefactorbetaforBBC=-SupposeGDPendsupgrowing5%andthe10-yearinterestrateendsupequaling4%.Alsoassumethatduringtheperiod,theBroadBandunexpectedlyexperiencesshortageofkeyinputs,causingitsrevenuestobelessthanoriginallyexpected.Consequently,thefirm-specificreturnis-2%duringtheperiod.Usingthe2-factormodelwiththereviseddata,whichofthefollowingexpectedreturnsforBBCiscorrect?Answer:RBBC=E(RBBC)+BBC,GDpFGDP+BBC，lRFIR+eBBCRBBC0.101.5(-0.01)一1(0.01)0.020.0555.5%Whichofthefollowingstatementsisleastlikelyarequirementforanarbitrageopportunity?Thearbitragesituationleadstoa:Risk- investmentProfitableReturninexcessoftherisk-rateAnswer:Anarbitragesituationexistsifarisk-,zer investmentcanbecreatedthatproducesapositiveprofit.Thearbitragereturnneednotexceedtherisk-rate.Whichofthefollowingassumptionsisnotmadewhenformingasingle-factorsecuritymarketSecurityreturnsaredescribedbyafactorAmean-varianceefficientmarketportfolioWell-diversifiedportfoliocanbeNoarbitrage Answer:Thederivationofthesingle-factorsecuritymarketlinedoesnotrelyontheassumptionthatmean-varianceefficientmarketportfolioexists.Thisisontrastwiththecapitalassetpricingwhichreliesontheexistenceofthemean-varianceefficientmarketSupposePortfolioPhasfactorbeatof0.40and0.50ontworiskfactors(riskfactors1and2,respectively).Assumeaportfoliomanagerwishestohedgeawayalloftheexposuretothetworiskfactors,yetdoesnotwanttoselltheportfolio.Whichofthefollowingstrategiesisexpectedtoachievethedesiredresult?Shortsellahedgeportfoliothatallocates40%tothefirstfactorportfolio,50%tothesecondfactorportfolio,and10%totherisk- Shortsellahedgeportfoliothatallocates90%tothemarketportfolioand10%totherisk-Buyahedgeportfoliothatallocates40%tothefirstfactorportfolio,50%tothesecondfactorportfolio,and10%totherisk- Buyahedgeportfoliothatallocates90%tothemarketportfolioand10%totherisk-Afactorportfolioisawell-diversifiedportfoliothathasafactorbetaequaltooneforasingleriskfactor,andfactorbetasequaltozeroontheremainingfactors.Byshortingthehedgeportfolio,theinvestorwilloffsetthefactorrisksoftheoriginalportfolio.Inthiscase,the0.40and0.50exposurestothetworiskfactorsareoffsetbytheshortpositioninthehedgeportfoliothatalsohas0.40and0.50exposurestothetworiskfactors.AnystisestimatingthesensitivityofthereturnofstockAtodifferentmacroeconomicfactors.Hepreparesthefollowingestimatesforthefactorbetas:Underbaselineexpectations,withindustrialproductiongrowthof3%andaninterestrateof1.5%,theexpectedreturnforStockAisestimatedtobe5%.Theeconomicresearchdepartmentisforecastinganaccelerationofeconomicactivityforthefollowingyear,withGDPforecasttogrow4.2%andinterestratesreasing25basispointstoWhatreturnofStockAcanbeexpectedfornextyea