Choose the correct answer:
The beta of an efficient portfolio: a. must be 1 since an efficient portfolio is perfectly positively correlated with the market portfolio.
b. is proportional to 1, depending on the proportion invested in the market portfolio.
c. is equivalent to the portfolio's standard deviation, since standard deviation is the measure of risk for an efficient portfolio.
d. is always less than 1.
Security A has a greater level of systematic risk than security B. The expected equilibrium return for A must be greater than that for B because:
a. B's price will fall as investors realize that B offers lower returns.
b. if it is not, then A's price will fall and B's price will rise as investors sell A and buy B.
c. the Security Market Line is negatively sloped.
d. the standard deviation of A's return is greater than B's.
In case of a simple CAPM being used to estimate a time series data:
a. the mean of a residual risk should be equal to zero.
b. the regression coefficient should be equal to zero.
c. the difference between the market return and the riskfree rate of return should be equal to zero.
d. the beta of the portfolio should be equal to zero.
In a CAPM framework, prohibiting short sales:
a. will prohibit investors from holding the market portfolio in equilibrium.
b. will make the security market line steeper.
c. will encourage investors to hold more riskless assets.
d. will not change the equilibrium.
Choose the correct answer:
The beta of an efficient portfolio: a. must be 1 since an efficient portfolio is perfectly positively correlated with the market portfolio.
b. is proportional to 1, depending on the proportion invested in the market portfolio.
c. is equivalent to the portfolio's standard deviation, since standard deviation is the measure of risk for an efficient portfolio.
d. is always less than 1.
Security A has a greater level of systematic risk than security B. The expected equilibrium return for A must be greater than that for B because:
a. B's price will fall as investors realize that B offers lower returns.
b. if it is not, then A's price will fall and B's price will rise as investors sell A and buy B.
c. the Security Market Line is negatively sloped.
d. the standard deviation of A's return is greater than B's.
In case of a simple CAPM being used to estimate a time series data:
a. the mean of a residual risk should be equal to zero.
b. the regression coefficient should be equal to zero.
c. the difference between the market return and the riskfree rate of return should be equal to zero.
d. the beta of the portfolio should be equal to zero.
In a CAPM framework, prohibiting short sales:
a. will prohibit investors from holding the market portfolio in equilibrium.
b. will make the security market line steeper.
c. will encourage investors to hold more riskless assets.
d. will not change the equilibrium.
