Question Five: Which of the following is not an assumption that underpins the capital asset pricing model (CAPM)? Investors behave in accordance with Markowitz mean-variance portfolio theory. Investors are rational and risk averse. Investors all invest for the same period of time. Investors have heterogeneous expectations about expected returns and return variances for all assets. There is a risk free rate at which all investors can borrow or lend any amount. Capital markets are perfectly competitive, frictionless and efficient. Question Six: Which of the following expressions best describes the slope of the security market line? The slope of the security market line is equal to the Sharpe ratio. The slope of the security market line is equal to the Treynor ratio. The slope of the security market line is equal to alpha. The slope of the security market line is equal to the market risk premium. The slope of the security market line is equal to the standard deviation of the risky portfolio. Question Seven: If the expected return for an individual stock lay above the security market line what scenario below would best describe the actions of investors? If the expected return for an individual stock lay above the security market line then the stock would be overpriced. This means that investors would sell the stock and the expected return would rise. If the expected return for an individual stock lay above the security market line then the stock would be underpriced. This means that investors would sell the stock and the expected return would rise. If the expected return for an individual stock lay above the security market line then the stock would be underpriced. This means that investors would buy the stock and the expected return would fall. If the expected return for an individual stock lay above the security market line then the stock would be overpriced. This means that investors would buy the stock and the expected return would fall. If the expected return for an individual stock lay above the security market line then the stock would be underpriced. This means that investors would sell the stock and the expected return would fall. Question Eight: Which collection of variables given below would be most likely to be included in a macro-factor asset pricing model? The growth in Gross Domestic Product, interest rates, inflation and the growth in industrial production. Book-to-market ratios, firm size, and price-earnings ratios. Dividend yields, term structure variables, and information on the management of individual companies. Purchasing power, the weather forecast and the number of baby elephants that were born in the last year. The price of orange juice, seasonal effects, and football scores from United States league games.

Question Five: Which of the following is not an assumption that underpins the capital asset pricing model (CAPM)? Investors behave in accordance with Markowitz mean-variance portfolio theory. Investors are rational and risk averse. Investors all invest for the same period of time. Investors have heterogeneous expectations about expected returns and return variances for all assets. There is a risk free rate at which all investors can borrow or lend any amount. Capital markets are perfectly competitive, frictionless and efficient. Question Six: Which of the following expressions best describes the slope of the security market line? The slope of the security market line is equal to the Sharpe ratio. The slope of the security market line is equal to the Treynor ratio. The slope of the security market line is equal to alpha. The slope of the security market line is equal to the market risk premium. The slope of the security market line is equal to the standard deviation of the risky portfolio. Question Seven: If the expected return for an individual stock lay above the security market line what scenario below would best describe the actions of investors? If the expected return for an individual stock lay above the security market line then the stock would be overpriced. This means that investors would sell the stock and the expected return would rise. If the expected return for an individual stock lay above the security market line then the stock would be underpriced. This means that investors would sell the stock and the expected return would rise. If the expected return for an individual stock lay above the security market line then the stock would be underpriced. This means that investors would buy the stock and the expected return would fall. If the expected return for an individual stock lay above the security market line then the stock would be overpriced. This means that investors would buy the stock and the expected return would fall. If the expected return for an individual stock lay above the security market line then the stock would be underpriced. This means that investors would sell the stock and the expected return would fall. Question Eight: Which collection of variables given below would be most likely to be included in a macro-factor asset pricing model? The growth in Gross Domestic Product, interest rates, inflation and the growth in industrial production. Book-to-market ratios, firm size, and price-earnings ratios. Dividend yields, term structure variables, and information on the management of individual companies. Purchasing power, the weather forecast and the number of baby elephants that were born in the last year. The price of orange juice, seasonal effects, and football scores from United States league games.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 8MC: You have been hired at the investment firm of Bowers & Noon. One of its clients doesn’t understand...

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Question Five: Which of the following is not an assumption that underpins the capital asset pricing model (CAPM)?

Investors behave in accordance with Markowitz mean-variance portfolio theory.
Investors are rational and risk averse.
Investors all invest for the same period of time.
Investors have heterogeneous expectations about expected returns and return variances for all assets.
There is a risk free rate at which all investors can borrow or lend any amount.
Capital markets are perfectly competitive, frictionless and efficient.

Question Six: Which of the following expressions best describes the slope of the security market line?

The slope of the security market line is equal to the Sharpe ratio.
The slope of the security market line is equal to the Treynor ratio.
The slope of the security market line is equal to alpha.
The slope of the security market line is equal to the market risk premium.
The slope of the security market line is equal to the standard deviation of the risky portfolio.

Question Seven: If the expected return for an individual stock lay above the security market line what scenario below would best describe the actions of investors?

If the expected return for an individual stock lay above the security market line then the stock would be overpriced. This means that investors would sell the stock and the expected return would rise.
If the expected return for an individual stock lay above the security market line then the stock would be underpriced. This means that investors would sell the stock and the expected return would rise.
If the expected return for an individual stock lay above the security market line then the stock would be underpriced. This means that investors would buy the stock and the expected return would fall.
If the expected return for an individual stock lay above the security market line then the stock would be overpriced. This means that investors would buy the stock and the expected return would fall.
If the expected return for an individual stock lay above the security market line then the stock would be underpriced. This means that investors would sell the stock and the expected return would fall.

Question Eight: Which collection of variables given below would be most likely to be included in a macro-factor asset pricing model?

The growth in Gross Domestic Product, interest rates, inflation and the growth in industrial production.
Book-to-market ratios, firm size, and price-earnings ratios.
Dividend yields, term structure variables, and information on the management of individual companies.
Purchasing power, the weather forecast and the number of baby elephants that were born in the last year.
The price of orange juice, seasonal effects, and football scores from United States league games.

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