Question 1

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.

Question 2

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.

Question 3

Your opinion is that Boeing has an expected rate of return of 0.112.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.

Question 4

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

Accepted Answer

A)  market risk.
B)  unsystematic risk.
C)  unique risk.
D)  reinvestment risk.

Question 5

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%, and the expected market rate of return is 11%.Your company has a beta of 1.4, 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)  13.8%.
B)  7%.
C)  15%.
D)  4%.

Question 6

Your opinion is that CSCO has an expected rate of return of 0.1375.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.

Question 7

A "fairly-priced" asset lies

Accepted Answer

A)  above the security-market line.
B)  on the security-market line.
C)  on the capital-market line.
D)  above the capital-market line.

Question 8

Given are the following two stocks A and B:  If the expected market rate of return is 0.09, and the risk-free rate is 0.05, which security would be considered the better buy, and why?

Accepted Answer

A)  A because it offers an expected excess return of 1.2%.
B)  B because it offers an expected excess return of 1.8%.
C)  A because it offers an expected excess return of 2.2%.
D)  B because it offers an expected return of 14%.

Question 9

If investors do not know their investment horizons for certain,

Accepted Answer

A)  the CAPM is no longer valid.
B)  the CAPM underlying assumptions are not violated.
C)  the implications of the CAPM are not violated as long as investors' liquidity needs are not priced.
D)  the implications of the CAPM are no longer useful.

Question 10

According to the CAPM, the risk premium an investor expects to receive on any stock or portfolio increases

Accepted Answer

A)  directly with alpha.
B)  inversely with alpha.
C)  directly with beta.
D)  inversely with beta.

Question 11

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.

Exam 9: The Capital Asset Pricing Model

Your opinion is that Boeing has an expected rate of return of 0.112.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
verified

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
verified

Which statement is not true regarding the capital market line (CML) ?

Correct Answer
verified

According to the CAPM, the risk premium an investor expects to receive on any stock or portfolio increases

Correct Answer
verified

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

Correct Answer
verified

Given are the following two stocks A and B: If the expected market rate of return is 0.09, and the risk-free rate is 0.05, which security would be considered the better buy, and why?

Correct Answer
verified

Your opinion is that CSCO has an expected rate of return of 0.1375.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

A "fairly-priced" asset lies

Correct Answer
verified

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

Correct Answer
verified

If investors do not know their investment horizons for certain,

Correct Answer
verified

Exam 9: The Capital Asset Pricing Model

Your opinion is that Boeing has an expected rate of return of 0.112.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

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

Which statement is not true regarding the capital market line (CML) ?

Correct AnswerverifiedShow Answer

According to the CAPM, the risk premium an investor expects to receive on any stock or portfolio increases

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

Correct AnswerverifiedShow Answer

Given are the following two stocks A and B: If the expected market rate of return is 0.09, and the risk-free rate is 0.05, which security would be considered the better buy, and why?

Correct AnswerverifiedShow Answer

Your opinion is that CSCO has an expected rate of return of 0.1375.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

A "fairly-priced" asset lies

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If investors do not know their investment horizons for certain,

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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