6. Which of the following is NOT an assumption used in deriving the Capital Asset Pricing Model (CAPM)? A) Investors have homogeneous expectations regarding the volatilities, correlation, and expected returns of securities. B) Investors have homogeneous risk-averse preferences toward taking on risk. C) Investors hold only efficient portfolios of traded securities, that is portfolios that yield the maximum expected return for the given level of volatility. D) Investors can buy and sell all securities at competitive market prices without incurring taxes or transactions cost and can borrow and lend at the risk-free interest rate.

6. Which of the following is NOT an assumption used in deriving the Capital Asset Pricing Model (CAPM)? A) Investors have homogeneous expectations regarding the volatilities, correlation, and expected returns of securities. B) Investors have homogeneous risk-averse preferences toward taking on risk. C) Investors hold only efficient portfolios of traded securities, that is portfolios that yield the maximum expected return for the given level of volatility. D) Investors can buy and sell all securities at competitive market prices without incurring taxes or transactions cost and can borrow and lend at the risk-free interest rate.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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According to the capital asset pricing model (CAPM), fairly priced securities should have __________. Select one: a. A fair return based on the level of systematic risk. b. A beta of 1. c. A return equal to the market return. d. A fair return based on the level of unsystematic risk.
The Capital Asset Pricing Model (CAPM) considers which type of risk in pricing the expected returns and risk of securities? A) Systemic risk. B) Unsystemic risk. C) Diversifiable risk. D) Non-market risk.
Which of the following is NOT an assumption used in deriving the Capital Asset Pricing Model (CAPM)? Investors can buy and sell all securities at competitive market prices without incurring taxes or transactions cost and can borrow and lend at the risk-free interest rate Investors hold only efficient portfolios of traded securities. Investors have homogeneous expectations regarding the volatilities, correlation, and expected returns of securities. Investors have homogeneous risk averse preferences toward taking on risk.
Which of the following statements are true about systematic risk? Select one or more: a. Beta is a measure of systematic risk in ALL asset pricing models b. Systematic risk can be fully eliminated by diversification С. Systematic risk can be traded among financial entities but cannot be destroyed or eliminated d. All stocks must have the same exposure/factor loading on systematic risk e. Systematic risk is priced f. The premia on systematic risk must always be higher than the risk-free rate Which statements are true of optimization? Select one or more: a. It is a general mathematical tool and can be used not only in portfolio optimization but many business problems b. When applied in real world setting we often use computers to estimate the optimum numerically rather than doing calculus by hand с. One of the earliest applications of optimization to business problems is Augustin Cournot's 1838 duopoly pricing model d. Optimization can only ever be as effective as the description of the…
Which one of the following expressions about risk and returns is wrong? A. In general, one reason why a stock is riskier than a bond is that because cash flows from a bond are known and promised, whereas cash flows from a stock are neither known nor promised. B. According to CAPM model, a well-diversified portfolio will have a beta which equals to 0. C. Risk premium is the extra return provided on risky assets to compensate for risk. The difference between risky return and the risk-free return. D. Unexpected return happened because new information came to light which caused our expectations about prices and returns to change.
Which of the following is a false statement of the market price of risk found in the Capital Market Line? a) The incremental risk divided by the incremental expected return. b) Indicates the additional expected return that the market demands for an increase in a portfolios risk. c) The equilibrium price of risk in the capital market. d) The slope of the capital market line.
In contrast to the capital asset pricing model, arbitrage pricing theory:a. Requires that markets be in equilibrium.b. Uses risk premiums based on micro variables.c. Specifies the number and identifies specific factors that determine expected returns.d. Does not require the restrictive assumptions concerning the market portfolio.
1) Please indicate whether the following statements are true or false. In case of a false statement, briefly specify why the statement is false. 1. A real asset is different from a financial asset because a real asset must take a physical form. 2. In the financial market, an investor buys financial securities from dealers at the ask price and sells financial securities to dealers at the bid price. 3. Mankowitz portfolio theory assumes average investors have a utility function as an increasing and concave function of future portfolio return. 4. According to CAPM, all well-diversified portfolios on the capital market line have the same Sharpe ratio. 5. The Markowitz portfolio theory assumes that investors hold homogenous expectations about risk and returns of financial securities.
Which statement is not true regarding the market portfolio? Group of answer choices a. It includes all publicly-traded financial assets. b. It lies on the efficient frontier. c. All securities in the market portfolio are held in proportion to their market values. d. It is the tangency point between the capital market line and the indifference curve.
Which of the following statements regarding non-systematic risk, systematic risk and total risk is/are true? Select one or more:a. As the number of assets within a portfolio increases, the total risk of a portfolio will go to zero.b. A riskfree asset must have zero non-systematic risk.c. A well diversified portfolio must have zero systematic riskd. Under the Capital Asset Pricing Model (CAPM).an asset with zero systematic risk must have expected return equal to the riskfree rate.
How is the arbitrage pricing theory (APT) similar to the capital asset pricing model? Group of answer choices Both theories assume that undiversifiable risk is priced. Both theories assume that diversifiable risk is priced Both theories assume investors will hold a well-diversified portfolio Both the first and second responses are true. Both the first and third responses are true.
In the capital asset pricing model, the general risk preferences of investors in the marketplace are reflected by ________. the level of the security market line the slope of the security market line the difference between the beta and the risk-free rate the risk-free rate

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