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La Trobe University FIN 3IPM 1)Which of the following are assumptions of the simple CAPM model? I

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La Trobe University

FIN 3IPM

1)Which of the following are assumptions of the simple CAPM model?

I.             Individual trades of investors do not affect a share's price

II.            All investors plan for one identical holding period

III.           All investors analyse securities in the same way and share the same economic view of the world

IV.          All investors have the same level of risk aversion Select one:

a.            I, II and IV only

 

b.            I, II and III only

c.             I, II, III and IV

d.            II, III and IV only

 

2.            You have a $50 000 portfolio consisting of Intel, GE and Con Edison. You put $20 000 in Intel, $12 000 in GE and the rest in Con Edison. Intel, GE and Con Edison have betas of 1.3, 1.1 and 0.8 respectively. What is your portfolio beta?

Select one:

a. 1.037

b. 1.048

c. 1.072

d. 1.000

3.            According to the CAPM, what is the market risk premium given an expected return on a security of 16%, a share beta of 1.2, and a risk-free interest rate of 4.0%?

Select one: a. 4.8%

b. 4.0%

 

c. 10%

d. 8%

4.            According to the capital asset pricing model,       . Select one:

a.            all securities' returns must lie on the capital market line

b.            any security with a beta of 1 must have an excess return of zero

c.             the slope of the security market line must be less than the market risk premium

d.            all securities' returns must lie on the security market line

5.            According to the capital asset pricing model, fairly priced securities have               . Select one:

a.            positive alphas

 

b.            zero alphas

c.             negative betas

d.            positive betas

 

6.            Which of the following statements is/are correct? Select one:

a.            If a market is semi-strong efficient it is also strong form efficient

b.            If a market is strong form efficient it is also semi-strong but not weak form efficient

c.             If a market is weak form efficient it is also semi- and strong form efficient

 

d.            If a market is strong form efficient it is also semi- and weak form efficient

7.            The primary objective of fundamental analysis is to identify        . Select one:

a.            poorly run firms

 

b.            mispriced stocks

c.             well-run firms

d.            actively-traded stocks

8.            An implication of the efficient market hypothesis is that                . Select one:

a.            high-beta stocks are consistently overpriced

b.            growth stocks are better buys than value stocks

 

c.             nonzero alphas will quickly disappear

d.            low-beta stocks are consistently overpriced

9.            Random price movements indicate         . Select one:

a.            that prices cannot equal fundamental values

b.            irrational markets

 

c.             that markets are functioning efficiently

d.            that technical analysis to uncover trends can be quite useful

10.          The weak form of the EMH states that   must be reflected in the current share price. Select one:

a.            all costless information

b.            all information including inside information

 

c.             all past information including security price and volume data

d.            all publicly available information