Portfolio Theory and Analysis

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

• Style (Firm) Specific- risk.

• unsystematic risk.

• unique risk.

• Market risk.

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

• have positive alphas.

• have zero alphas.

• have negative betas.

• have negative alphas.

In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of risk is.

• unique risk.

• Systematic Risk (beta).

• standard deviation of returns.

• skewness

The market portfolio has a beta (Defensive) of

• 0.

• 1.

• -1.

• 0.75

The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1 is equal to.

• 0.06.

• 0.144.

• 0.12.

• 0.132.

The ……………………. as a distribution is the most likely outcome for the random variable.

• Standard Deviation.

• Variance.

• Correlation Coefficient.

• Mean.

The ………………….. gives an indication of how far from the mean a typical observation is likely to fall.

• Standard Deviation.

• Variance.

• Correlation Coefficient.

• Mean.

……………… An absolute measure of the extent to which two variables tend to covary, or move together

• Standard Deviation.

• Variance.

• Covariance Coefficient.

• Mean.

With………………, there is no linear relationship between the returns on the two securities.

• Correlation Coefficient.

• Positive correlation.

• zero correlation.

• Negative correlation.

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

• $R_f+\beta\left[E\left(R_m\right)\right]$

• $R_f+\beta\left[E\left(R_m\right)-R_f\right]$

• $R_f-\beta\left[E\left(R_m\right)-R_f\right]$

• $\beta\left[E\left(R_m\right)-R_f\right]$

• $E\left(R_m\right)+R_f$