Professional Documents
Culture Documents
Chapter 7 Risk, Return, and The Capital Asset Pricing Model: AWS Cloud Security Risks
Chapter 7 Risk, Return, and The Capital Asset Pricing Model: AWS Cloud Security Risks
WORD (http://pdftoword-converter.online/enter/?url=https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html)
PNG (http://pdftopng-converter.online/enter/?url=https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html)
TXT (http://pdftotext-converter.online/enter/?url=https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html)
JPG (http://pdftojpg-converter.online/enter/?url=https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html)
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 1/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
Transcription
1 Chapter 7 Risk, Return, and the Capital Asset Pricing Model MULTIPLE CHOICE 1. Suppose Sarah can borrow and lend at the risk free-rate
of 3%. Which of the following four risky portfolios should she hold in combination with a position in the risk-free asset? a. portfolio with a
Top Stocks to Invest In standard deviation of 15% and an expected return of 12% b. portfolio with a standard deviation of 19% and an expected return of 15% c.
portfolio with a standard deviation of 25% and an expected return of 18% d. portfolio with a standard deviation of 12% and an expected
Best Bond Funds return of 9% To determine which portfolio is the best, draw a line from the risk-free rate to each dot in the gure and choose the line with the
highest slope. DIF: H 2. Suppose David can borrow and lend at the risk-free rate of 5%. Which of the following three risky portfolios should he
hold in combination with a position in the risk-free asset? a. portfolio with a standard deviation of 16% and an expected return of 12% b. portfolio with a standard deviation of
20% and an expected return of 16% c. portfolio with a standard deviation of 30% and an expected return of 20% d. he should be indi erent in holding any of the three portfolios
2 To determine which portfolio is the best, draw a line from the risk-free rate to each dot in the gure and choose the line with the highest slope. DIF: H 3. The risk-free rate is
5% and the expected return on the market portfolio is 13%. A stock has a beta of 1.5, what is its expected return? a. 17% b. 12% c. 19.5% d. 24.5% E(R) = 5% + 1.5(13%-5%) = 17%
DIF: E 4. The risk-free rate is 5% and the expected return on the market portfolio is 13%. A stock has a beta of 1.0, what is its expected return? a. 8% b. 13% c. 5% d. none of the
above E(R) = 5% + 1.0(13%-5%) = 13% DIF: E 5. The risk-free rate is 5% and the expected return on the market portfolio is 13%. A stock has a beta of 0, what is its expected return?
a. 0% b. 5% c. 13% d. none of the above E(R) = 5% + 0(13%-5%) = 5%
3 DIF: E 6. According to the CAPM (capital asset pricing model), the security market line is a straight line. The intercept of this line should be equal to a. zero b. the expected risk
premium on the market portfolio c. the risk-free rate d. the expected return on the market portfolio ANS: C 7. According to the CAPM (capital asset pricing model), the security
market line is a straight line. The slope of this line should be equal to a. zero b. the expected risk premium on the market portfolio c. the risk-free rate d. the expected return on
the market portfolio 8. According to the CAPM (capital asset pricing model), what is the single factor that explains di erences in returns across securities? a. the risk-free rate b.
the expected risk premium on the market portfolio c. the beta of a security d. the expected return on the market portfolio e. the volatility of a security ANS: C DIF: E 9. If the
market portfolio has an expected return of 0.12 and a standard deviation of 0.40, and the risk-free rate is 0.04, what is the slope of the security market line? a b c d Slope = = A
particular asset has a beta of 1.2 and an expected return of 10%. The expected return on the market portfolio is 13% and the risk-free is 5%. Which of the following statement is
correct? a. This asset lies on the security market line. b. This asset lies above the security market line. c. This asset lies below the security market line. d. Cannot tell from the
given information. ANS: C Equilibrium return = 5% (13%-5%) = 14.6%
4 11. A particular asset has a beta of 1.2 and an expected return of 10%. The expected return on the market portfolio is 13% and the risk-free is 5%. The stock is a. overpriced
b. underpriced c. appropriately priced d. Cannot tell from the given information Equilibrium return = 5% (13%-5%) = 14.6% 12. An asset has a beta of 2.0 and an expected return
of 20%. The expected risk premium on the market portfolio is 5% and the risk-free is 7%. The stock is a. overpriced b. underpriced c. appropriately priced d. Cannot tell from the
given information Equilibrium return = 7% (5%) = 17% 13. A stock that pays no dividends is currently priced at $40 and is expected to increase in price to $45 by year end. The
expected risk premium on the market portfolio is 6% and the risk-free is 5%. If the stock has a beta of 0.6, the stock is a. overpriced b. underpriced c. appropriately priced d.
Cannot tell from the given information Equilibrium return = 5% (6%) = 8.6% Stock expected return = (45-40)/40 = 12.5% 14. A particular stock has a beta of 1.4 and an expected
return of 13%. If the expected risk premium on the market portfolio is 6%, what s the expected return on the market portfolio? a. 10.6% b. 4.6% c. 8.4% d. 9.3% 13% = R f (6%) R f
= 4.6% Expected market return = 4.6% + 6% = 10.6%
5 15. A particular stock has an expected return of 18%. If the expected return on the market portfolio is 13%, and the risk-free rate is 5%, what s the stock s CAPM beta? a b c d
% = 5% + (8%) = A particular stock has an expected return of 11%. If the expected risk premium on the market portfolio is 8%, and the risk-free rate is 5%, what s the stock s
CAPM beta? a b c d % = 5% + (8%) = The stock of Alpha Company has an expected return of 15.5% and a beta of 1.5, and Gamma Company stock has an expected return of 13.4%
and a beta of 1.2. Assume the CAPM holds. What s the expected return on the market? a. 12% b. 7% c. 10.3% d. 11.2% Suppose the risk free rate is R f, and the expected market
return is R m. 15.5% = R f +1.5(R m -R f ) 13.4% = R f +1.2(R m -R f ) R f = 5% R m = 12% 18. The stock of Alpha Company has an expected return of 18% and a beta of 1.5, and
Gamma Company stock has an expected return of 15.6% and a beta of 1.2. Assume the CAPM holds. What s the risk-free rate? a. 8.0% b. 6.0% c. 0% d. 4.7% Suppose the risk free
rate is R f, and the expected market return is R m.
6 18% = R f +1.5(R m -R f ) 15.6% = R f +1.2(R m -R f ) R f = 6% R m = 14% 19. The CAPM (capital asset pricing model) assumes that: a. all assets can be traded b. investors are
risk-averse c. investors have homogeneous expectations d. all of the above ANS: D DIF: H 20. A portfolio has 40% invested in Asset 1 and 60% invested in Asset 2. If Asset 1 has a
beta of 1.2 and Asset 2 has a beta of 1.8, what s the beta of the portfolio? a b c d e. cannot tell from the given information Suppose the expected return of Asset 1 is R 1, the
expected return of Asset 2 is R 2, the risk free rate is R f, and the market return is R m. Portfolio expected return = 0.4R R 2 = 0.4[R f +1.2(R m -R f )]+ 0.6[R f +1.8(R m -R f )]= R f
+1.56(R m -R f )] DIF: H REF: 7.2 Risk and Return for Portfolios 21. A portfolio has 40% invested in Asset 1, 50% invested in Asset 2 and 10% invested in Asset 3. Asset 1 has a beta
of 1.2, Asset 2 has a beta of 0.8 and Asset 3 has a beta of 1.8, what s the beta of the portfolio? a b c d e. Cannot tell from given information ANS: C Suppose the expected return
of Asset 1 is R 1, the expected return of Asset 2 is R 2, the expected return of Asset 3 is R 3, the risk free rate is R f, and the market return is R m. Portfolio expected return = 0.4R
R R 3 = 0.4[R f +1.2(R m -R f )]+ 0.5[R f +0.8(R m -R f )]+ 0.1[R f +1.8(R m -R f )] = R f +1.06(R m -R f )] DIF: H REF: 7.2 Risk and Return for Portfolios 22. A portfolio consists 20% of a
risk-free asset and 80% of a stock. The risk-free return is 4%. The stock has an expected return of 15% and a standard deviation of 30%. What s the expected return a. 12.8%
7 b. 9.5% c. 15.0% d. 4.0% Portfolio expected return = 20%(4%) + 80%(15%) = 12.8% REF: 7.2 Risk and Return for Portfolios 23. The stock of Alpha Company has an expected
return of 0.10 and a standard deviation of The stock of Gamma Company has an expected return of 0.16 and a standard deviation of The correlation coe cient between the two
stock s return is 0.2. If a portfolio consists of 40% of Alpha Company and 60% of Gamma Company, what s the expected return of the portfolio? a b c d Portfolio expected return
=.4(0.10) +.6(0.16) = REF: 7.2 Risk and Return for Portfolios 24. Asset 1 has a beta of 1.2 and Asset 2 has a beta of 0.6. Which of the following statements is correct? a. Asset 1 is
more volatile than Asset 2. b. Asset 1 has a higher expected return than Asset 2. c. In a regression with individual asset s return as the dependent variable and the market s
return as the independent variable, the R-squared value is higher for Asset 1 than it is for Asset 2. d. All of the above statements are correct. 25. An investor put 40% of her
money in Stock A and 60% in Stock B. Stock A has a beta of 1.2 and Stock B has a beta of 1.6. If the risk-free rate is 5% and the expected return on the market is 12%, what s the
investor s expected return? a % b % c % d % ANS: C Expected return (stock A) = 5% + 1.2(12%-5%) = 13.4% Expected return (stock B) = 5% + 1.6(12%-5%) = 16.2% Portfolio
expected return =.4(13.4%) +.6(16.2%) = 15.08% REF: 7.2 Risk and Return for Portfolios 26. You have the following data on the securities of three rms: Return last year Beta Firm
A 10% 0.8 Firm B 11% 1.0 Firm C 12% 1.2
8 If the risk-free rate last year was 3%, and the return on the market was 11%, which rm had the best performance on a risk-adjusted basis? a. Firm A b. Firm B c. Firm C d.
There is no di erence in performance on a risk-adjusted basis Expected return ( rm A) = 3% + 0.8(8%) = 9.4% < actual rm A return Expected return ( rm B) = 3% + 1.0(8%) = 11%
= actual rm B return Expected return ( rm C) = 3% + 1.2(8%) = 12.6% > actual rm C return Only rm A beats the market on a risk-adjusted basis. 27. Expected returns are: a.
always positive. b. always greater than the risk-free rate. c. inherently unobservable. d. usually equal to actual returns. ANS: C DIF: E REF: 7.1 Expected Returns 28. Which of the
following is not a method used by analysts to estimate an asset s expected return? a. historical approach b. probabilistic approach c. risk-based approach d. estimation approach
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 2/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
ANS: D DIF: E REF: 7.1 Expected Returns 29. A drawback to the historical approach of estimating an asset s expected return is: a. the risk of the rm may have changed over time.
b. history always repeats itself. c. that the range of potential outcomes is often very broad. d. all of the above are drawbacks to the historical approach. DIF: E REF: 7.1 Expected
Returns 30. An advantage of the probabilistic approach to estimating an asset s returns is: a. history always repeats itself. b. it does not require one to assume that the future will
look like the past. c. recent history is more important than future risk. d. exact probabilities are easy to estimate. DIF: E REF: 7.1 Expected Returns 31. A disadvantage of the
probabilistic approach to estimating an asset s returns is: a. history always repeats itself. b. it does not require one to assume that the future will look like the past. c. recent
history is more important than future risk. d. that the range of possible outcomes is often broader than the scenarios used. ANS: D REF: 7.1 Expected Returns
9 32. Suppose that over the last 20 years, company XYZ has averaged a return of 13%. Over the same period, the Treasury bond rate has averaged 4%. The current estimate of
the Treasury bond rate is 6.5%. Using the historical approach, what is the estimate of XYZ s expected return. a. 13.0% b. 16.5% c. 15.5% d. 19.5% ANS: C Historical Risk Premium =
13% - 4% = 9% Expected Return = 9% + 6.5% = 15.5% DIF: E REF: 7.1 Expected Returns 33. Suppose that over the last 30 years, company ABC has averaged a return of 10%. Over
the same period, the Treasury bond rate has averaged 3%. The current estimate of the Treasury bond rate is 5%. Using the historical approach, what is the estimate of ABC s
expected return. a. 13.0% b. 12.5% c. 12.0% d. 11.0% ANS: C Historical Risk Premium = 10% - 3% = 7% Expected Return = 7% + 5% = 12% DIF: E REF: 7.1 Expected Returns 34.
Suppose that over the last 25 years, company DEF has averaged a return of 7.5%. Over the same period, the Treasury bond rate has averaged 1.5%. The current estimate of the
Treasury bond rate is 4%. Using the historical approach, what is the estimate of DEF s expected return. a. 13.0% b. 12.5% c. 12.0% d. 10.0% ANS: D Historical Risk Premium =
7.5% - 1.5% = 6% Expected Return = 6% + 4% = 10% DIF: E REF: 7.1 Expected Returns NARRBEGIN: Exhibit 7-1 Exhibit 7-1 Outcome Probability Return Recession 25% -30%
Expansion 40% 15% Boom 35% 55% NARREND 35. Given Exhibit 7-1, what is the expected return? a % b %
10 c % d % ANS: D 0.25* * *0.55 = DIF: E REF: 7.1 Expected Returns NAR: Exhibit Given Exhibit 7-1, what is the expected variance? a % b % c % d % Outcome Probability Return
Return - E(r) (Return - (E(r))2 Recession 25% -30% % % Expansion 40% 15% -2.75% 7.56% Boom 35% 55% 37.25% % 100% Variance % REF: 7.1 Expected Returns NAR: Exhibit Given
Exhibit 7-1, what is the expected standard deviation? a % b % c % d % ANS: D Outcome Probability Return Return - E(r) (Return - (E(r))2 Recession 25% -30% % % Expansion 40%
15% -2.75% 7.56% Boom 35% 55% 37.25% % 100% Variance % Std Dev 32.54% REF: 7.1 Expected Returns NAR: Exhibit 7-1 NARRBEGIN: Exhibit 7-2 Exhibit 7-2 Outcome
Probability Return Recession 40% -25% Expansion 25% 20% Boom 35% 45% NARREND 38. Given Exhibit 7-2, what is the expected return? a % b %
11 c % d % 0.4* * *0.45 = DIF: E REF: 7.1 Expected Returns NAR: Exhibit Given Exhibit 7-2, what is the expected variance? a % b % c % d % Outcome Probability Return Return -
E(r) (Return - (E(r))2 Recession 40% -25% % % Expansion 25% 20% 9.25% 85.56% Boom 35% 45% 34.25% % 100% Variance % REF: 7.1 Expected Returns NAR: Exhibit Given Exhibit
7-2, what is the expected standard deviation? a % b % c % d % ANS: C Outcome Probability Return Return - E(r) (Return - (E(r))2 Recession 40% -25% % % Expansion 25% 20%
9.25% 85.56% Boom 35% 45% 34.25% % 100% Variance % Std Dev 30.71% REF: 7.1 Expected Returns NAR: Exhibit The rst step in the risk-based approach to estimating a
security s expected return is to: a. de ne what is meant by risk and to measure it. b. quantify how much return we should expect on an asset with a given amount of risk. c.
estimate the risk-free rate. d. de ne what is meant by return. DIF: E REF: 7.1 Expected Returns 42. Standard deviation measures: a. systematic risk. b. unsystematic risk. c. total
risk. d. beta risk. ANS: C DIF: E REF: 7.1 Expected Returns
12 43. Investors can eliminate what type of risk by diversifying? a. systematic risk b. unsystematic risk c. beta risk d. total risk DIF: E REF: 7.1 Expected Returns 44. Which type of
risk a ects many di erent securities? a. return risk b. variance risk c. unsystematic risk d. systematic risk ANS: D DIF: E REF: 7.1 Expected Returns 45. Which type of risk a ects
just a few securities at a time? a. return risk b. variance risk c. unsystematic risk d. systematic risk ANS: C DIF: E REF: 7.1 Expected Returns 46. A standardized measure of risk is: a.
alpha b. beta c. gamma d. omega DIF: E REF: 7.1 Expected Returns 47. Which type of rm would most likely have the greatest systematic risk? a. A grocery store chain b. A electric
company c. A telephone company d. A vibrating chair manufacturer ANS: D REF: 7.1 Expected Returns 48. The beta of the risk-free asset is: a b. 0.0 c. 0.5 d. 1.0 DIF: E REF: 7.1
Expected Returns NARRBEGIN: Exhibit 7-3 Exhibit 7-3 Security Weight Expected Return 1 30% 10% 2 15% 3 10% 21%
13 NARREND 49. Given Exhibit 7-3, what is the weight of Security 2? a. 20% b. 40% c. 60% d. 80% ANS: C = 60 DIF: E REF: 7.2 Risk and Return for Portfolios NAR: Exhibit Given
Exhibit 7-3, what is the expected return on the portfolio? a. 14.1% b. 15.0% c. 16.3% d. 17.9% 0.3* * *0.21 = DIF: E REF: 7.2 Risk and Return for Portfolios NAR: Exhibit 7-3
NARRBEGIN: Exhibit 7-4 Exhibit 7-4 NARREND Security Weight Expected Return 1 7% 2 35% 9% 3 40% 51. Given Exhibit 7-4, what is the weight of Security 1? a. 25% b. 35% c. 45%
d. 55% = 25 DIF: E REF: 7.2 Risk and Return for Portfolios NAR: Exhibit Given Exhibit 7-4, if the expected return on the portfolio is 9.7%, what is the expected return for Security 3?
a. 10% b. 11% c. 12% d. 13% ANS: C 0.25* * *X = 0.097
14 X =.12 REF: 7.2 Risk and Return for Portfolios NAR: Exhibit 7-4 NARRBEGIN: Exhibit 7-5 Exhibit 7-5 NARREND Security $ Invested Expected Return 1 $5,000 7% 2 $7,000 9% 3
$9,000 12% 53. Given Exhibit 7-5, what is the weight of Security 1? a. 42.9% b. 33.3% c. 23.8% d. Cannot be determined with the data given ANS: C $5,000/$21,000 =.238 DIF: E
REF: 7.2 Risk and Return for Portfolios NAR: Exhibit Given Exhibit 7-5, what is the weight of Security 2? a. 42.9% b. 33.3% c. 23.8% d. Cannot be determined with the data given
$7,000/$21,000 =.333 DIF: E REF: 7.2 Risk and Return for Portfolios NAR: Exhibit Given Exhibit 7-5, what is the weight of Security 3? a. 42.9% b. 33.3% c. 23.8% d. Cannot be
determined with the data given $9,000/$21,000 =.429 DIF: E REF: 7.2 Risk and Return for Portfolios NAR: Exhibit Given Exhibit 7-5, what is the expected return on the portfolio? a.
9.81% b. 9.00% c % d. Cannot be determined with the data given
15 5000/21000* /21000* /21000*0.12 = DIF: E REF: 7.2 Risk and Return for Portfolios NAR: Exhibit If you believed a stock was going to fall in price, a strategy to pro t from the
stock decline is known as: a. buying long. b. buying short. c. selling long. d. selling short. ANS: D DIF: E REF: 7.2 Risk and Return for Portfolios NARRBEGIN: Exhibit 7-6 Exhibit 7-6
NARREND Security $ Invested Beta 1 $9, $5, $8, Given Exhibit 7-6, what is the portfolio beta? a b c d /22000* /22000* /22000*1.2 = DIF: E REF: 7.2 Risk and Return for Portfolios
NAR: Exhibit 7-6 NARRBEGIN: Exhibit 7-7 Exhibit 7-7 NARREND Security $ Invested Beta 1 $3, $7, $2, Given Exhibit 7-7, what is the portfolio beta? a b c d /12000* /12000*
/12000*0.9 = DIF: E REF: 7.2 Risk and Return for Portfolios NAR: Exhibit 7-7
16 60. The country with the highest level of systematic risk is: a. Russia b. Poland c. Taiwan d. USA DIF: H REF: 7.2 Risk and Return for Portfolios 61. The di erence between the
return on the market portfolio and the risk-free rate is known as the: a. total return. b. systematic premium. c. unsystematic return. d. market risk premium. ANS: D DIF: E 62. An
investor has $10,000 invested in Treasury securities and $15,000 invested in stock UVW. UVW has a beta of 1.2. What is the beta of the portfolio? a b c d ($10,000/$25,000 * 0) =
($15,000/$25,000 * 1.2) = The slope of the security market line is: a. E(R m ) - R f b. 1/(E(R m ) - R f ) c. R f - E(R m ) d. R f 64. The intercept of the security market line is: a. E(R m ) - R
f b. 1/(E(R m ) - R f ) c. R f - E(R m ) d. R f ANS: D 65. The slope of the security market line is: a. the return on the market. b. beta. c. the market risk premium. d. the risk-free rate.
ANS: C 66. The formula for the Capital Asset Pricing Model is: a. E(R i ) = R f + i(e(r m ) - R f ) b. E(R i ) = R f + ie(r m )
17 c. E(R i ) = i (E(R m ) - R f ) d. E(R i ) + R f = i(e(r m ) - R f ) DIF: E 67. Security I has a beta of 1.3, the risk-free rate is 4%, and the expected return on the market is 11%. What is
the expected return for Security I? a. 15.0% b. 18.3% c. 14.6% d. 13.1% ANS: D 4% + (11% - 4%)1.3 = 13.1% DIF: E 68. Security I has a beta of 1.3, the risk-free rate is 4%, and the
expected market risk premium is 11%. What is the expected return for Security I? a. 15.0% b. 18.3% c. 14.6% d. 13.1% 4% + (11%)1.3 = 18.3% DIF: E 69. The idea that asset prices
fully re ect all available information is known as the: a. fair price hypothesis. b. e cient market hypothesis. c. full information hypothesis. d. full price hypothesis. DIF: E REF: 7.4
Are Stock Returns Predictable? 70. The hypothesis that states that it is nearly impossible to predict exactly when stocks will do well relative to bonds is known as the: a. fair price
hypothesis. b. e cient market hypothesis. c. full information hypothesis. d. full price hypothesis. DIF: E REF: 7.4 Are Stock Returns Predictable? 71. A mutual fund that adopts a
passive management style is called: a. an index fund. b. a research fund. c. an active fund. d. a technology fund. DIF: E REF: 7.4 Are Stock Returns Predictable? 72. What type of
mutual fund managers do extensive analysis to identify mispriced stocks? a. passive
18 b. index c. active d. short ANS: C DIF: E REF: 7.4 Are Stock Returns Predictable? 73. A buy-and-hold strategy: a. typically earns higher returns, after expenses, than an active
stock picking strategy. b. always earns the lowest returns. c. always have the lowest risk. d. typically outperforms most market indexes. DIF: E REF: 7.4 Are Stock Returns
Predictable? 74. Active managers: a. generate lower expenses for their shareholders than passive managers. b. trade more frequently than passive managers c. always use
trading rules to decide when to buy and sell stocks. d. all of the above. REF: 7.4 Are Stock Returns Predictable? 75. Modern nancial markets are: a. competitive. b. transparent. c.
e cient. d. all of the above. ANS: D REF: 7.4 Are Stock Returns Predictable?
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 3/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
Similar documents
Review for Exam 2. Instructions: Please read carefully (/15688064-Review-for-exam-2-instructions-please-read-
carefully.html)
Review for Exam 2 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems You are not responsible for any
topics that are not covered in the lecture note
CHAPTER 10 RISK AND RETURN: THE CAPITAL ASSET PRICING MODEL (CAPM) (/5408521-Chapter-10-risk-and-return-
the-capital-asset-pricing-model-capm.html)
CHAPTER 10 RISK AND RETURN: THE CAPITAL ASSET PRICING MODEL (CAPM) Answers to Concepts Review and Critical Thinking Questions 1. Some of the risk in
holding any asset is unique to the asset in question.
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 4/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
Solution: The optimal position for an investor with a coe cient of risk aversion A = 5 in the risky asset is y*:
(/20520789-Solution-the-optimal-position-for-an-investor-with-a-coe cient-of-risk-aversion-a-5-in-the-risky-asset-is-
y.html)
Problem 1. Consider a risky asset. Suppose the expected rate of return on the risky asset is 15%, the standard deviation of the asset return is 22%, and the risk-
free rate is 6%. What is your optimal position
AFM 472. Midterm Examination. Monday Oct. 24, 2011. A. Huang (/11467604-Afm-472-midterm-examination-
monday-oct-24-2011-a-huang.html)
AFM 472 Midterm Examination Monday Oct. 24, 2011 A. Huang Name: Answer Key Student Number: Section (circle one): 10:00am 1:00pm 2:30pm Instructions:
1. Answer all questions in the space provided. If space
FIN 432 Investment Analysis and Management Review Notes for Midterm Exam (/5408355-Fin-432-investment-
analysis-and-management-review-notes-for-midterm-exam.html)
FIN 432 Investment Analysis and Management Review Notes for Midterm Exam Chapter 1 1. Investment vs. investments 2. Real assets vs. nancial assets 3.
Investment process Investment policy, asset allocation,
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 5/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
Test3. Pessimistic Most Likely Optimistic Total Revenues 30 50 65 Total Costs -25-20 -15 (/4389002-Test3-pessimistic-
most-likely-optimistic-total-revenues-30-50-65-total-costs-25-20-15.html)
Test3 1. The market value of Charcoal Corporation's common stock is $20 million, and the market value of its riskfree debt is $5 million. The beta of the
company's common stock is 1.25, and the market
t = 1 2 3 1. Calculate the implied interest rates and graph the term structure of interest rates. t = 1 2 3 X t = 100 100
100 t = 1 2 3 (/18685772-T-1-2-3-1-calculate-the-implied-interest-rates-and-graph-the-term-structure-of-interest-
rates-t-1-2-3-x-t-100-100-100-t-1-2-3.html)
MØA 155 PROBLEM SET: Summarizing Exercise 1. Present Value [3] You are given the following prices P t today for receiving risk free payments t periods from
now. t = 1 2 3 P t = 0.95 0.9 0.85 1. Calculate
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 6/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
15.433 Investments. Assignment 1: Securities, Markets & Capital Market Theory. Each question is worth 0.2 points,
the max points is 3 points (/14646353-15-433-investments-assignment-1-securities-markets-capital-market-theory-
each-question-is-worth-0-2-points-the-max-points-is-3-points.html)
Assignment 1: Securities, Markets & Capital Market Theory Each question is worth 0.2 points, the max points is 3 points 1. The interest rate charged by banks
with excess reserves at a Federal Reserve Bank
1. a. (iv) b. (ii) [6.75/(1.34) = 10.2] c. (i) Writing a call entails unlimited potential losses as the stock price rises.
(/20115486-1-a-iv-b-ii-6-75-1-34-10-2-c-i-writing-a-call-entails-unlimited-potential-losses-as-the-stock-price-rises.html)
1. Solutions to PS 1: 1. a. (iv) b. (ii) [6.75/(1.34) = 10.2] c. (i) Writing a call entails unlimited potential losses as the stock price rises. 7. The bill has a maturity of one-
half year, and an annualized
Chapter 5. Conditional CAPM. 5.1 Conditional CAPM: Theory. 5.1.1 Risk According to the CAPM. The CAPM is not a
perfect model of expected returns. (/20428190-Chapter-5-conditional-capm-5-1-conditional-capm-theory-5-1-1-risk-
according-to-the-capm-the-capm-is-not-a-perfect-model-of-expected-returns.html)
Chapter 5 Conditional CAPM 5.1 Conditional CAPM: Theory 5.1.1 Risk According to the CAPM The CAPM is not a perfect model of expected returns. In the 40+
years of its history, many systematic deviations
M.I.T. Spring 1999 Sloan School of Management 15.415. First Half Summary (/12997073-M-i-t-spring-1999-sloan-
school-of-management-15-415- rst-half-summary.html)
M.I.T. Spring 1999 Sloan School of Management 15.415 First Half Summary Present Values Basic Idea: We should discount future cash ows. The appropriate
discount rate is the opportunity cost of capital.
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 7/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
Chapter 13 Composition of the Market Portfolio 1. Capital markets in Flatland exhibit trade in four securities, the
stocks X, Y and Z, (/20115418-Chapter-13-composition-of-the-market-portfolio-1-capital-markets-in- atland-exhibit-
trade-in-four-securities-the-stocks-x-y-and-z.html)
Chapter 13 Composition of the arket Portfolio 1. Capital markets in Flatland exhibit trade in four securities, the stocks X, Y and Z, and a riskless government
security. Evaluated at current prices in
FCS5510 Sample Homework Problems and Answer Key Unit03 CHAPTER 6. INVESTMENT COMPANIES: MUTUAL
FUNDS (/7266051-Fcs5510-sample-homework-problems-and-answer-key-unit03-chapter-6-investment-companies-
mutual-funds.html)
FCS5510 Sample Homework Problems and Answer Key Unit03 CHAPTER 6. INVESTMENT COMPANIES: MUTUAL FUNDS PROBLEMS 1. What is the net asset value
of an investment company with $10,000,000 in assets, $500,000
Capital Allocation Between The Risky And The Risk- Free Asset. Chapter 7 (/11350183-Capital-allocation-between-the-
risky-and-the-risk-free-asset-chapter-7.html)
Capital Allocation Between The Risky And The Risk- Free Asset Chapter 7 Investment Decisions capital allocation decision = choice of proportion to be invested in
risk-free versus risky assets asset allocation
Chapter 5. Risk and Return. Copyright 2009 Pearson Prentice Hall. All rights reserved. (/18870845-Chapter-5-risk-
and-return-copyright-2009-pearson-prentice-hall-all-rights-reserved.html)
Chapter 5 Risk and Return Learning Goals 1. Understand the meaning and fundamentals of risk, return, and risk aversion. 2. Describe procedures for assessing
and measuring the risk of a single asset. 3.
1. CFI Holdings is a conglomerate listed on the Zimbabwe Stock Exchange (ZSE) and has three operating divisions as
follows: (/12774812-1-c -holdings-is-a-conglomerate-listed-on-the-zimbabwe-stock-exchange-zse-and-has-three-
operating-divisions-as-follows.html)
NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY FACULTY OF COMMERCE DEPARTMENT OF FINANCE BACHELOR OF COMMERCE HONOURS DEGREE IN
FINANCE PART II 2 ND SEMESTER FINAL EXAMINATION MAY 2005 CORPORATE FINANCE
Chapter 5. Risk and Return. Learning Goals. Learning Goals (cont.) (/22076285-Chapter-5-risk-and-return-learning-
goals-learning-goals-cont.html)
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 8/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
Chapter 5 Risk and Return Learning Goals 1. Understand the meaning and fundamentals of risk, return, and risk aversion. 2. Describe procedures for assessing and
measuring the risk of a single asset. 3.
Makeup Exam MØA 155 Financial Economics February 2010 Permitted Material: Calculator, Norwegian/English
Dictionary (/14642253-Makeup-exam-moa-155- nancial-economics-february-2010-permitted-material-calculator-
norwegian-english-dictionary.html)
University of Stavanger (UiS) Stavanger Masters Program Makeup Exam MØA 155 Financial Economics February 2010 Permitted Material: Calculator,
Norwegian/English Dictionary The number in brackets is the
Paper 2. Derivatives Investment Consultant Examination. Thailand Securities Institute November 2014 (/12846052-
Paper-2-derivatives-investment-consultant-examination-thailand-securities-institute-november-2014.html)
Derivatives Investment Consultant Examination Paper 2 Thailand Securities Institute November 2014 Copyright 2014, All right reserve Thailand Securities
Institute (TSI) The Stock Exchange of Thailand Page
Journal of Exclusive Management Science May 2015 -Vol 4 Issue 5 - ISSN 2277 5684 (/20854846-Journal-of-exclusive-
management-science-may-2015-vol-4-issue-5-issn-2277-5684.html)
Journal of Exclusive Management Science May 2015 Vol 4 Issue 5 ISSN 2277 5684 A Study on the Emprical Testing Of Capital Asset Pricing Model on Selected
Energy Sector Companies Listed In NSE Abstract *S.A.
Chapter 11. Topics Covered. Chapter 11 Objectives. Risk, Return, and Capital Budgeting (/12744449-Chapter-11-
topics-covered-chapter-11-objectives-risk-return-and-capital-budgeting.html)
Chapter 11 Risk, Return, and Capital Budgeting Topics Covered Measuring Market Risk Portfolio Betas Risk and Return CAPM and Expected Return Security
Market Line CAPM and Stock Valuation Chapter 11 Objectives
Final Exam MØA 155 Financial Economics Fall 2009 Permitted Material: Calculator (/14642250-Final-exam-moa-155-
nancial-economics-fall-2009-permitted-material-calculator.html)
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 9/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
University of Stavanger (UiS) Stavanger Masters Program Final Exam MØA 155 Financial Economics Fall 2009 Permitted Material: Calculator The number in brackets is the
weight for each problem. The weights
3. You have been given this probability distribution for the holding period return for XYZ stock: (/21406190-3-you-
have-been-given-this-probability-distribution-for-the-holding-period-return-for-xyz-stock.html)
Fin 85 Sample Final Solution Name: Date: Part I ultiple Choice 1. Which of the following is true of the Dow Jones Industrial Average? A) It is a value-weighted
average of 30 large industrial stocks. )
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 10/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
Actual Returns. Large Long-Term Company Government Treasury Year Stocks Bonds Bills (/15443416-Actual-returns-
large-long-term-company-government-treasury-year-stocks-bonds-bills.html)
408 PART FIVE Risk and Return 1. Risky assets, on average, earn a risk premium. There is a reward for bearing risk. 2. The greater the potential reward from a
risky investment, the greater is the risk.
MBA 8230 Corporation Finance (Part II) Practice Final Exam #2 (/20886390-Mba-8230-corporation- nance-part-ii-
practice- nal-exam-2.html)
MBA 8230 Corporation Finance (Part II) Practice Final Exam #2 1. Which of the following input factors, if increased, would result in a decrease in the value of a
call option? a. the volatility of the company's
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 11/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
A Review of Cross Sectional Regression for Financial Data You should already know this material from previous study
(/17521542-A-review-of-cross-sectional-regression-for- nancial-data-you-should-already-know-this-material-from-
previous-study.html)
A Review of Cross Sectional Regression for Financial Data You should already know this material from previous study But I will o er a review, with a focus on
issues which arise in nance 1 TYPES OF FINANCIAL
Holding Period Return. Return, Risk, and Risk Aversion. Percentage Return or Dollar Return? An Example. Percentage
Return or Dollar Return? 10% or 10? (/21404466-Holding-period-return-return-risk-and-risk-aversion-percentage-
return-or-dollar-return-an-example-percentage-return-or-dollar-return-10-or-10.html)
Return, Risk, and Risk Aversion Holding Period Return Ending Price - Beginning Price + Intermediate Income Return = Beginning Price R P t+ t+ = Pt + Dt P t An
Example You bought IBM stock at $40 last month.
Institutional Finance 08: Dynamic Arbitrage to Replicate Non-linear Payo s. Binomial Option Pricing: Basics (Chapter
10 of McDonald) (/12140630-Institutional- nance-08-dynamic-arbitrage-to-replicate-non-linear-payo s-binomial-
option-pricing-basics-chapter-10-of-mcdonald.html)
Copyright 2003 Pearson Education, Inc. Slide 08-1 Institutional Finance 08: Dynamic Arbitrage to Replicate Non-linear Payo s Binomial Option Pricing: Basics
(Chapter 10 of McDonald) Originally prepared
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 12/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
The CAPM (Capital Asset Pricing Model) NPV Dependent on Discount Rate Schedule (/21289532-The-capm-capital-
asset-pricing-model-npv-dependent-on-discount-rate-schedule.html)
The CAPM (Capital Asset Pricing Model) Massachusetts Institute of Technology CAPM Slide 1 of NPV Dependent on Discount Rate Schedule Discussed NPV and
time value of money Choice of discount rate in uences
CHAPTER 10. Capital Markets and the Pricing of Risk. Chapter Synopsis (/22073104-Chapter-10-capital-markets-and-
the-pricing-of-risk-chapter-synopsis.html)
CHAPE 0 Capital Markets and the Pricing of isk Chapter Synopsis 0. A First Look at isk and eturn Historically there has been a large di erence in the returns and
variability from investing in di erent
WEB APPENDIX. Calculating Beta Coe cients. b Beta Rise Run Y 7.1 1 8.92 X 10.0 0.0 16.0 10.0 1.6 (/21511337-Web-
appendix-calculating-beta-coe cients-b-beta-rise-run-y-7-1-1-8-92-x-10-0-0-0-16-0-10-0-1-6.html)
WEB APPENDIX 8A Calculating Beta Coe cients The CAPM is an ex ante model, which means that all of the variables represent before-thefact, expected values.
In particular, the beta coe cient used in
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 13/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
Market E ciency and Behavioral Finance Chapter 12 Market E ciency if stock prices re ect rm performance, should we be able to predict them? if prices were to be
predictable, that would create the
Chapter 9. The Valuation of Common Stock. 1.The Expected Return (Copied from Unit02, slide 39) (/11277517-
Chapter-9-the-valuation-of-common-stock-1-the-expected-return-copied-from-unit02-slide-39.html)
Readings Chapters 9 and 10 Chapter 9. The Valuation of Common Stock 1. The investor s expected return 2. Valuation as the Present Value (PV) of dividends and
the growth of dividends 3. The investor s required
Corporate Finance, Fall 03 Exam #2 review questions (full solutions at end of document) (/9754207-Corporate-
nance-fall-03-exam-2-review-questions-full-solutions-at-end-of-document.html)
Corporate Finance, Fall 03 Exam #2 review questions (full solutions at end of document) 1. Portfolio risk & return. Idaho Slopes (IS) and Dakota Steppes (DS) are
both seasonal businesses. IS is a downhill
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 14/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
The cost of capital. A reading prepared by Pamela Peterson Drake. 1. Introduction (/14704123-The-cost-of-capital-a-
reading-prepared-by-pamela-peterson-drake-1-introduction.html)
The cost of capital A reading prepared by Pamela Peterson Drake O U T L I N E 1. Introduction... 1 2. Determining the proportions of each source of capital that
will be raised... 3 3. Estimating the marginal
Achievement of Market-Friendly Initiatives and Results Program (AMIR 2.0 Program) Funded by U.S. Agency for
International Development (/15688118-Achievement-of-market-friendly-initiatives-and-results-program-amir-2-0-
program-funded-by-u-s-agency-for-international-development.html)
Achievement of Market-Friendly Initiatives and Results Program (AMIR 2.0 Program) Funded by U.S. Agency for International Development Equity, Portfolio
Management, Real Estate Practice Exam 2 and Solutions
GESTÃO FINANCEIRA II PROBLEM SET 3 - SOLUTIONS (FROM BERK AND DEMARZO S CORPORATE FINANCE )
LICENCIATURA UNDERGRADUATE COURSE (/17890690-Gestao- nanceira-ii-problem-set-3-solutions-from-berk-and-
demarzo-s-corporate- nance-licenciatura-undergraduate-course.html)
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 15/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
GESTÃO FINANCEIRA II PROBLEM SET 3 - SOLUTIONS (FROM BERK AND DEMARZO S CORPORATE FINANCE ) LICENCIATURA UNDERGRADUATE COURSE 1 ST SEMESTER 010-
011 Chapter 10 Capital Markets and the Pricing of Risk 10-1.
Finance 3130 Corporate Finiance Sample Final Exam Spring 2012 (/8269055-Finance-3130-corporate- niance-
sample- nal-exam-spring-2012.html)
Finance 3130 Corporate Finiance Sample Final Exam Spring 2012 True/False Indicate whether the statement is true or falsewith A for true and B for false. 1.
Interest paid by a corporation is a tax deduction
FTS Real Time System Project: Portfolio Diversi cation Note: this project requires use of Excel s Solver (/5408133-Fts-
real-time-system-project-portfolio-diversi cation-note-this-project-requires-use-of-excel-s-solver.html)
FTS Real Time System Project: Portfolio Diversi cation Note: this project requires use of Excel s Solver Question: How do you create a diversi ed stock portfolio?
Advice given by most nancial advisors
TPPE17 Corporate Finance 1(5) SOLUTIONS RE-EXAMS 2014 II + III (/14266009-Tppe17-corporate- nance-1-5-
solutions-re-exams-2014-ii-iii.html)
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 16/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
TPPE17 Corporate Finance 1(5) SOLUTIONS RE-EXAMS 2014 II III Instructions 1. Only one problem should be treated on each sheet of paper and only one side of the sheet
should be used. 2. The solutions folder
Finance Homework p. 65 (3, 4), p. 66-69 (1, 2, 3, 4, 5, 12, 14), p. 107 (2), p. 109 (3,4) (/20700065-Finance-homework-p-
65-3-4-p-66-69-1-2-3-4-5-12-14-p-107-2-p-109-3-4.html)
Finance Homework p. 65 (3, 4), p. 66-69 (1, 2, 3, 4, 5, 12, 14), p. 107 (2), p. 109 (3,4) Julian Vu 2-3: Given: Security A Security B r = 7% r = 12% σ (standard deviation)
= 35% σ (standard deviation)
INVESTMENTS IN OFFSHORE OIL AND NATURAL GAS DEPOSITS IN ISRAEL: BASIC PRINCIPLES ROBERT S. PINDYCK
(/11469433-Investments-in-o shore-oil-and-natural-gas-deposits-in-israel-basic-principles-robert-s-pindyck.html)
INVESTMENTS IN OFFSHORE OIL AND NATURAL GAS DEPOSITS IN ISRAEL: BASIC PRINCIPLES ROBERT S. PINDYCK Bank of Tokyo-Mitsubishi Professor of
Economics and Finance Sloan School of Management Massachusetts Institute
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 17/18
10/27/2018 Chapter 7 Risk, Return, and the Capital Asset Pricing Model - PDF
Mean-Variance Portfolio Analysis and the Capital Asset Pricing Model (/22399387-Mean-variance-portfolio-analysis-
and-the-capital-asset-pricing-model.html)
Mean-Variance Portfolio Analysis and the Capital Asset Pricing Model 1 Introduction In this handout we develop a model that can be used to determine how a
risk-averse investor can choose an optimal asset
2018 © DocPlayer.net Privacy Policy (/support/privacy-policy/) | Terms of Service (/support/terms-of-service/) | Feedback (/support/feedback/)
https://docplayer.net/12509623-Chapter-7-risk-return-and-the-capital-asset-pricing-model.html 18/18