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WorksheetsKey principles of asset pricing used in portfolio management
Total questions: 10
Worksheet time: 5mins
Which of the following is not an assumption of the Capital Market Theory?
All investors are Markowitz efficient investors.
All investors have homogeneous expectations.
There are no taxes or transaction costs in buying or selling assets.
All investments are indivisible so it is impossible to buy or sell fractional shares.
All investors have the same one period time horizon.
Which of the following statements about the risk-free asset is correct?
The risk-free asset is defined as an asset for which there is uncertainty regarding the expected rate of return.
The standard deviation of return for the risk-free asset is equal to zero.
The standard deviation of return for the risk-free asset cannot be zero, since division by zero is undefined.
Choices a and b
Choices a and c
What does WRF = -0.50 mean?
The investor can borrow money at the risk-free rate.
The investor can lend money at the current market rate.
The investor can borrow money at the current market rate.
The investor can borrow money at the prime rate of interest.
The investor can lend money at the prime rate of interest.
The separation theorem divides decisions on ____ from decisions on ____.
Lending, borrowing
Risk, return
Investing, financing
Risky assets, risk free assets
Buying stocks, buying bonds
When identifying undervalued and overvalued assets, which of the following statements is false?
An asset is properly valued if its estimated rate of return is equal to its required rate of return.
An asset is considered overvalued if its estimated rate of return is below its required rate of return.
An asset is considered undervalued if its estimated rate of return is above its required rate of return.
An asset is considered overvalued if its required rate of return is below its estimated rate of return.
None of the above (that is, all are true statements)
As the number of securities in a portfolio increases, the amount of systematic risk
Remains constant.
Decreases.
Increases.
Changes.
None of the above
All portfolios on the capital market line are
Perfectly positively correlated.
Perfectly negatively correlated.
Unique from each other.
Weakly correlated.
Unrelated except that they contain the risk free asset.
All of the following are assumptions of the Capital Asset Pricing Model (CAPM) except
Investors can borrow and lend any amount at the risk-free rate.
Investors all have homogeneous expectations regarding expected returns.
Investors can have different time horizons, daily, weekly, annual, or some other period.
All investments are infinitely divisible.
Capital markets are in equilibrium.
Calculate the expected return for A Industries which has a beta of 1.75 when the risk free rate is 0.03 and you expect the market return to be 0.11.
11.13%
14.97%
16.25%
22.25%
17.0%
Consider a risky asset that has a standard deviation of returns of 15. Calculate the correlation between the risky asset and a risk free asset.
1.0
0.0
-1.0
0.5
-0.5
