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Question
The index model for stock B has been estimated with the following result:
RB = 0.01 + 1.1RM + eB.
If σM = 0.20 and R2B = 0.50, the standard deviation of the return on stock B is
A. 0.1111.
B. 0.2111.
C. 0.3111.
D. 0.4111.
Answer
This answer is hidden. It contains 44 characters.
Related questions
Q:
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.
Q:
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. Both CAPM depends on risk-return dominance; APT depends on a no-arbitrage condition and 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.
E. All of the options are true.
Q:
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 (each equally likely to occur); 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: If you invested in an equally-weighted portfolio of stocks A and C, your portfolio return would be ____________ if economic growth was strong.
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Q:
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Q:
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
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Q:
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 options are correct.
Q:
In a multifactor APT model, the coefficients on the macro factors are often called
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B. factor sensitivities.
C. idiosyncratic risk.
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Q:
The capital asset pricing model assumes
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B. all investors have the same holding period.
C. investors have homogeneous expectations.
D. all investors are price takers and have the same holding period.
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Q:
Studies of liquidity spreads in security markets have shown that
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B. illiquid stocks earn higher returns than liquid stocks.
C. both liquid and illiquid stocks earn the same returns.
D. illiquid stocks are good investments for frequent, short-term traders.
Q:
As a financial analyst, you are tasked with evaluating a capital-budgeting project. You were instructed to use
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Q:
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Q:
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Q:
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Q:
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Q:
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Q:
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A. I and III
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Q:
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Q:
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Q:
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II) unique risk
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Q:
When two risky securities that are positively correlated but not perfectly correlated are held in a portfolio,
A. the portfolio standard deviation will be greater than the weighted average of the individual security standard
deviations.
B. the portfolio standard deviation will be less than the weighted average of the individual security standard
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Q:
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Q:
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Q:
Which statement about portfolio diversification is correct?
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B. The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities
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C. Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.
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Q:
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Q:
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Q:
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A. 0.24; 0.76
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Q:
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A. 1.5%; 1.9%
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Q:
The variance of a portfolio of risky securities
A. is a weighted sum of the securities' variances.
B. is the sum of the securities' variances.
C. is the weighted sum of the securities' variances and covariances.
D. is the sum of the securities' covariances.
E. None of the options are correct.
Q:
You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a
T-bill with a rate of return of 0.03.
What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to
form a portfolio with an expected return of 0.08?
A. 85% and 15%
B. 75% and 25%
C. 62.5% and 37.5%
D. 57% and 43%
E. Cannot be determined.
Q:
An investor invests 35% of his wealth in a risky asset with an expected rate of return of 0.18 and a variance of
0.10 and 65% in a T-bill that pays 4%. His portfolio's expected return and standard deviation are __________
and __________, respectively.
A. 0.089; 0.111
B. 0.087; 0.063
C. 0.096; 0.126
D. 0.087; 0.144