Question 1

As a financial analyst,you are tasked with evaluating a capital budgeting project.You were instructed to use the IRR method and you need to determine an appropriate hurdle rate.The risk-free rate is 4 percent and the expected market rate of return is 11 percent.Your company has a beta of 0.67 and the project that you are evaluating is considered to have risk equal to the average project that the company has accepted in the past.According to CAPM,the appropriate hurdle rate would be ______%.

Accepted Answer

A)  4
B)  8.69
C)  15
D)  11
E)  0.75

Question 2

Which statement is not true regarding the Capital Market Line (CML) ?

Accepted Answer

A)  The CML is the line from the risk-free rate through the market portfolio.
B)  The CML is 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.

Question 3

According to the Capital Asset Pricing Model (CAPM) ,

Accepted Answer

A)  a security with a positive alpha is considered overpriced.
B)  a security with a zero alpha is considered to be a good buy.
C)  a security with a negative alpha is considered to be a good buy.
D)  a security with a positive alpha is considered to be underpriced.
E)  none of the above.

Question 4

Which statement is not true regarding the market portfolio?

Accepted Answer

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 and the indifference curve.
E)  All of the above are true.

Question 5

Your opinion is that Boeing has an expected rate of return of 0.08.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

Accepted Answer

A)  underpriced.
B)  overpriced.
C)  fairly priced.
D)  cannot be determined from data provided.
E)  none of the above.

Question 6

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

Accepted Answer

A)  underpriced.
B)  overpriced.
C)  fairly priced.
D)  cannot be determined from data provided.
E)  none of the above.

Question 7

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

Accepted Answer

A)  1.40
B)  1.00
C)  0.52
D)  1.08
E)  0.80

Question 8

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

Accepted Answer

A)  have positive betas.
B)  have zero alphas.
C)  have negative alphas.
D)  have positive alphas.
E)  none of the above.

Question 9

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

Accepted Answer

A)  Rf+ β [E(RM) ].
B)  Rf+ β [E(RM)  - Rf].
C)  β [E(RM)  - Rf].
D)  E(RM)  + Rf.
E)  none of the above.

Question 10

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

Accepted Answer

A)  1.40
B)  1.00
C)  0.52
D)  1.08
E)  0.80

Question 11

Which statement is true regarding the market portfolio?

Accepted Answer

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 and the indifference curve.
E)  A,B,and C are true.

Question 12

The risk-free rate is 4 percent.The expected market rate of return is 11 percent.If you expect CAT with a beta of 1.0 to offer a rate of return of 11 percent,you should

Accepted Answer

A)  buy CAT because it is overpriced.
B)  sell short CAT because it is overpriced.
C)  sell stock short CAT because it is underpriced.
D)  buy CAT because it is underpriced.
E)  none of the above,as CAT is fairly priced.

Question 13

Which of the following statements about the mutual fund theorem is true?
I.It is similar to the separation property.
II.It implies that a passive investment strategy can be efficient.
III.It implies that efficient portfolios can be formed only through active strategies.
IV.It means that professional managers have superior security selection strategies.

Accepted Answer

A)  I and IV
B)  I, II, and IV
C)  I and II
D)  III and IV
E)  II and IV

Question 14

Discuss the differences between the capital market line and the security market line.

Accepted Answer

The capital market line measures the exc...

Question 15

A security has an expected rate of return of 0.13 and a beta of 2.1.The market expected rate of return is 0.09 and the risk-free rate is 0.045.The alpha of the stock is

Accepted Answer

A)  -0.95%.
B)  -1.7%.
C)  8.3%.
D)  5.5%.
E)  none of the above.

Question 16

The Security Market Line (SML) is

Accepted Answer

A)  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 return-beta relationship.
E)  all of the above.

Question 17

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

Accepted Answer

A)  underpriced.
B)  overpriced.
C)  fairly priced.
D)  cannot be determined from data provided.
E)  none of the above.

Question 18

Discuss how the CAPM might be used in capital budgeting decisions and utility rate decisions.

Accepted Answer

The CAPM can be used to establish a hurd...

Question 19

An underpriced security will plot

Accepted Answer

A)  on the Security Market Line.
B)  below the Security Market Line.
C)  above the Security Market Line.
D)  either above or below the Security Market Line depending on its covariance with the market.
E)  either above or below the Security Market Line depending on its standard deviation.

Question 20

The risk-free rate is 4 percent.The expected market rate of return is 11 percent.If you expect CAT with a beta of 1.0 to offer a rate of return of 13 percent,you should

Accepted Answer

A)  buy CAT because it is overpriced.
B)  sell short CAT because it is overpriced.
C)  sell stock short CAT because it is underpriced.
D)  buy CAT because it is underpriced.
E)  none of the above,as CAT is fairly priced.

Exam 12: Behavioral Finance and Technical Analysis

Your opinion is that Boeing has an expected rate of return of 0.08.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

Correct Answer
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The risk-free rate is 4 percent.The expected market rate of return is 11 percent.If you expect CAT with a beta of 1.0 to offer a rate of return of 13 percent,you should

Correct Answer
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The risk-free rate is 4 percent.The expected market rate of return is 11 percent.If you expect CAT with a beta of 1.0 to offer a rate of return of 11 percent,you should

Correct Answer
verified

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

Correct Answer
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Correct Answer
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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

Correct Answer
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According to the Capital Asset Pricing Model (CAPM) ,overpriced securities

Correct Answer
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Which statement is true regarding the market portfolio?

Correct Answer
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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

Correct Answer
verified

Which statement is not true regarding the Capital Market Line (CML) ?

Correct Answer
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A security has an expected rate of return of 0.13 and a beta of 2.1.The market expected rate of return is 0.09 and the risk-free rate is 0.045.The alpha of the stock is

Correct Answer
verified

Discuss the differences between the capital market line and the security market line.

Correct Answer
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The capital market line measures the exc...
View Answer

Which statement is not true regarding the market portfolio?

Correct Answer
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An underpriced security will plot

Correct Answer
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Discuss how the CAPM might be used in capital budgeting decisions and utility rate decisions.

Correct Answer
verified
The CAPM can be used to establish a hurd...
View Answer

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

Correct Answer
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Correct Answer
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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

Correct Answer
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According to the Capital Asset Pricing Model (CAPM) ,

Correct Answer
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The Security Market Line (SML) is

Correct Answer
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Exam 12: Behavioral Finance and Technical Analysis

Your opinion is that Boeing has an expected rate of return of 0.08.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

Correct AnswerverifiedShow Answer

The risk-free rate is 4 percent.The expected market rate of return is 11 percent.If you expect CAT with a beta of 1.0 to offer a rate of return of 13 percent,you should

Correct AnswerverifiedShow Answer

The risk-free rate is 4 percent.The expected market rate of return is 11 percent.If you expect CAT with a beta of 1.0 to offer a rate of return of 11 percent,you should

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which statement is true regarding the market portfolio?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which statement is not true regarding the Capital Market Line (CML) ?

Correct AnswerverifiedShow Answer

A security has an expected rate of return of 0.13 and a beta of 2.1.The market expected rate of return is 0.09 and the risk-free rate is 0.045.The alpha of the stock is

Correct AnswerverifiedShow Answer

Discuss the differences between the capital market line and the security market line.

Correct AnswerverifiedThe capital market line measures the exc...View AnswerShow Answer

Which statement is not true regarding the market portfolio?

Correct AnswerverifiedShow Answer

An underpriced security will plot

Correct AnswerverifiedShow Answer

Discuss how the CAPM might be used in capital budgeting decisions and utility rate decisions.

Correct AnswerverifiedThe CAPM can be used to establish a hurd...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the Capital Asset Pricing Model (CAPM) ,

Correct AnswerverifiedShow Answer

The Security Market Line (SML) is

Correct AnswerverifiedShow Answer

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The capital market line measures the exc...
View Answer

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The CAPM can be used to establish a hurd...
View Answer

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