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Exam 9: The Capital Asset Pricing Model

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Question 31

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The CAPM applies to

A) portfolios of securities only.
B) individual securities only.
C) efficient portfolios of securities only.
D) efficient portfolios and efficient individual securities only.
E) all portfolios and individual securities.

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Question 32

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The capital asset pricing model assumes

A) all investors are price takers.
B) all investors have the same holding period.
C) investors pay taxes on capital gains.
D) all investors are price takers and have the same holding period.
E) all investors are price takers, have the same holding period, and pay taxes on capital gains.

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Question 33

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According to the Capital Asset Pricing Model (CAPM) , a well diversified portfolio's rate of return is a function of

If investors do not know their investment horizons for certain,

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

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.

According to the Capital Asset Pricing Model (CAPM) , the expected rate of return on any security is equal to

According to the Capital Asset Pricing Model (CAPM) , underpriced securities have

An underpriced security will plot

You invest $200 in security A with a beta of 1.4 and $800 in security B with a beta of 0.3. The beta of the resulting portfolio is

The risk-free rate and the expected market rate of return are 0.04 and 0.12, respectively. According to the capital asset pricing model (CAPM) , the expected rate of return on security X with a beta of 1.4 is equal to

Empirical results regarding betas estimated from historical data indicate that betas

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

A "fairly-priced" asset lies

According to the Capital Asset Pricing Model (CAPM) , a security with a

Standard deviation and beta both measure risk, but they are different in that beta measures

Which statement is not true regarding the market portfolio?

A stock generates a perpetual cash flow of $5 per share, per year. The market index has an expected return of 11% and the risk free rate is 3%. If the stock's listed beta is 0.8 and I believe the true beta is 0.5, how much of a premium will I pay for the stock?

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

The risk-free rate is 5%. The expected market rate of return is 11%. If you expect stock X with a beta of 2.1 to offer a rate of return of 15%, you should