Capital Asset Pricing Model and Portfolio
Chapter 10
Arbitrage Pricing Theory and Multifactor Models of Risk and Return
Multiple Choice Questions 1. ___________ a relationship between expected return and risk.
A. APT stipulates
B. CAPM stipulates
C. Both CAPM and APT stipulate
D. Neither CAPM nor APT stipulate
E. No pricing model has found
Both models attempt to explain asset pricing based on risk/return relationships. Difficulty: Easy 2. ___________ a relationship between expected return and risk.
A. APT stipulates
B. CAPM stipulates
C. CCAPM stipulates
D. APT, CAPM, and CCAPM stipulate
E. No pricing model has found
APT, CAPM, and CCAPM models attempt to explain asset pricing based on risk/return relationships. Difficulty: Easy 3. In a multi-factor APT model, the coefficients on the macro factors are often called ______.
A. systemic risk
B. factor sensitivities
C. idiosyncratic risk
D. factor betas
E. B and D
The coefficients are called factor betas, factor sensitivities, or factor loadings. Difficulty: Easy
6. Which pricing model provides no guidance concerning the determination of the risk premium on factor portfolios?
A. The CAPM
B. The multifactor APT
C. Both the CAPM and the multifactor APT
D. Neither the CAPM nor the multifactor APT
E. None of the above is a true statement.
The multifactor APT provides no guidance as to the determination of the risk premium on the various factors. The CAPM assumes that the excess market return over the risk-free rate is the market premium in the single factor CAPM. Difficulty: Moderate 7. An arbitrage opportunity exists if an investor can construct a __________ investment portfolio that will yield a sure profit.
A. positive
B. negative
C. zero
D. all of the above
E. none of the above
If the investor can construct a portfolio without the use of the investor's own funds and the portfolio yields a positive profit, arbitrage opportunities exist. Difficulty: Easy 9. A _________
Arbitrage Pricing Theory and Multifactor Models of Risk and Return
Multiple Choice Questions 1. ___________ a relationship between expected return and risk.
A. APT stipulates
B. CAPM stipulates
C. Both CAPM and APT stipulate
D. Neither CAPM nor APT stipulate
E. No pricing model has found
Both models attempt to explain asset pricing based on risk/return relationships. Difficulty: Easy 2. ___________ a relationship between expected return and risk.
A. APT stipulates
B. CAPM stipulates
C. CCAPM stipulates
D. APT, CAPM, and CCAPM stipulate
E. No pricing model has found
APT, CAPM, and CCAPM models attempt to explain asset pricing based on risk/return relationships. Difficulty: Easy 3. In a multi-factor APT model, the coefficients on the macro factors are often called ______.
A. systemic risk
B. factor sensitivities
C. idiosyncratic risk
D. factor betas
E. B and D
The coefficients are called factor betas, factor sensitivities, or factor loadings. Difficulty: Easy
6. Which pricing model provides no guidance concerning the determination of the risk premium on factor portfolios?
A. The CAPM
B. The multifactor APT
C. Both the CAPM and the multifactor APT
D. Neither the CAPM nor the multifactor APT
E. None of the above is a true statement.
The multifactor APT provides no guidance as to the determination of the risk premium on the various factors. The CAPM assumes that the excess market return over the risk-free rate is the market premium in the single factor CAPM. Difficulty: Moderate 7. An arbitrage opportunity exists if an investor can construct a __________ investment portfolio that will yield a sure profit.
A. positive
B. negative
C. zero
D. all of the above
E. none of the above
If the investor can construct a portfolio without the use of the investor's own funds and the portfolio yields a positive profit, arbitrage opportunities exist. Difficulty: Easy 9. A _________