23 Questions
The correlation coefficient between the returns on two stocks with different volatility equals zero. For an equally weighted portfolio of such stocks, the correlation has the implication that:
None of the above.
The beta of an individual security is a measure of:
Market risk of the security.
When you increase the number of assets in a portfolio:
None of the above.
The Fama-French-Carhart model assumes that:
There exist four systematic risk factors that affect expected security returns.
The CAPM beta of a stock equals one. This indicates that:
The expected return on the stock equals the expected return on the market portfolio according to the CAPM.
Which of the following statements about options is correct:
Risk-neutral valuation works because the arbitrage free price of an option does not depend on investors risk aversion.
An efficient stock market implies that:
None of the above.
Which of the following statements about real options is correct:
The underlying asset of a real option is usually not traded on the stock exchange.
The correlation coefficient between the returns on stock A and B equals 0.3. The standard deviation of the return on stock A and B are 0.25 and 0.35 respectively. The standard deviation of the return on a portfolio with 50% invested in stock A and 50% invested in stock B is closest to:
25%
The CAPM assumes that:
All investors mix risk-free bonds and the market portfolio with weights that depend on their individual risk aversion.
The beta of a stock in a CAPM regression is 0.75. The risk-free rate of return is 4% and the expected return on the market portfolio equals 9%. According to the CAPM, the expected return on this stock is closest to:
8%
Diversification implies that:
The volatility of a two-stock portfolio is lower than the weighted average volatility of the two stocks.
The alpha of a CAPM regressions measures:
The historical performance of the asset relative to the expected returns predicted by the CAPM.
When increasing the number of assets in a portfolio:
None of the above
The correlation coefficient between the returns on two stocks equals one. The correlation has the implication that:
There will be no diversification
The CAPM beta of a stock equals zero. This indicates that:
The expected return on the stock equals the risk free return according to the CAPM.
Which of the following statements about options is correct:
The value of an option depends on, among other factors, the volatility of the underlying asset.
Which of the following statements about real options is correct:
A real option is usually an American option
The correlation coefficient between the returns on stock A and B equals 0.5. The standard deviation of the return on stock A and B are 0.20 and 0.35 respectively. The standard deviation of the return on a portfolio with 25% invested in stock A and 75% invested in stock B is closet to: (0,250,2)^2 + (0,750,35)^2 + 20,50,250,750,2*0,35
30%
An efficient stock market implies that:
None of the above.
The beta of a stock in a CAPM regression is 1.5. The risk-free rate of return is 3% and the expected return on the market portfolio equals 8%. According to the CAPM, the expected return on this stock is closest to:
10%
The CAPM assumes that:
Investors borrowing rate equals the risk-free interest rate.
Diversification implies that:
The volatility of a two-stock portfolio is lower than the weighted average volatility of the two stocks.
Test your knowledge of portfolio theory, market models, and options with this quiz. Explore concepts like correlation coefficients, beta measures, asset diversification, and option characteristics.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
