FINA 4920E Lecture Notes - Lecture 8: Capital Asset Pricing Model, Risk-Free Interest Rate, Efficient Frontier
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The standard deviation of portfolio Aâs returns for the coming year is 3%. The standard deviation of portfolio Bâs returns for the coming year is 7%. Portfolio A has an expected return of 12%, while Portfolio Bâs expected return is 15%. If Portfolio A is less risky, why would an investor select Portfolio B?
a. | Two-thirds of the time, Portfolio A has an expected return range of between 9% to 15%. | |
b. | Two-thirds of the time, Portfolio B has an expected return range of between 8% to 22%. | |
c. | Two-thirds of the time, the higher risk of Portfolio B is offset by a comparable expected return range on the low side, and a superior expected return range on the high side. | |
d. | Given the data, an investor would not reasonably consider investing in Portfolio B. |
The Russian securities market plummeted at the news that Western Europe and the United States threatened economic sanctions against Russia in retaliation for its occupation of the Crimea. The risk to securities that is affected by news of this sort is termed what?
a. | Systematic risk. | |
b. | Unsystematic risk. | |
c. | Diversifiable risk. | |
d. | Nondiversifiable risk. | |
e. | Both (a) and (d). | |
f. | Both (b) and (c). |
63) If the simple CAPM is valid and all portfolios are priced correctly, which of the situations below is possible? Consider each situation independently, and assume the risk-free rate is 5%.
A)
Portfolio | Expected Return | Beta | ||||
A | 11 | % | 1.2 | |||
Market | 11 | % | 1.0 | |||
B)
Portfolio | Expected Return | Standard Deviation | ||||
A | 14 | % | 12 | % | ||
Market | 9 | % | 20 | % | ||
C)
Portfolio | Expected Return | Beta | ||||
A | 14 | % | 1.2 | |||
Market | 9 | % | 1.0 | |||
D)
Portfolio | Expected Return | Beta | ||||
A | 18.8 | % | 2.3 | |||
Market | 11 | % | 1.0 | |||
which of the situations below is possible?
Option C Option A Option D Option B
71) Which of the following stock price observations would appear to contradict the weak form of the efficient market hypothesis?
a) The correlation between the market return one week and the return the following week is zero.
b) You could have consistently made superior returns by forecasting future earnings performance with your new Crystal Ball forecast methodology.
c) You could have consistently made superior returns by buying stock after a 10% rise in price and selling after a 10% fall.
d) The average rate of return is significantly greater than zero.