Chapter 8 Index Models 163 Multiple Choice Questions 1. As diversification increases the total variance of a portfolio approaches ____________. A 0 B 1 C the variance of the market portfolio D infinity E none of the above Answer: C Difficulty: Easy Rationale: As more and more securities are added to the portfolio unsystematic risk decreases and most of the remaining risk is systematic as measured by the variance of the market portfolio. 2. The index model was first suggested by ____________. A Graham B Markowitz C Miller D Sharpe E none of the above Answer: D Difficulty: Easy Rationale: William Sharpe building on the work of Harry Markowitz developed the index model. 3. A single-index model uses __________ as a proxy for the systematic risk factor. A a market index such as the SampP 500 B the current account deficit C the growth rate in GNP D the unemployment rate E none of the above Answer: A Difficulty: Easy Rationale: The single-index model uses a market index such as the SampP 500 as a proxy for the market and thus for systematic risk. Chapter 8 Index Models 164 4. The Security Risk Evaluation book published by Merrill Lynch relies on the __________ most recent monthly observations to calculate regression parameters. A 12 B 36 C 60 D 120 E none of the above Answer: C Difficulty: Easy Rationale: Most published betas and other regression parameters including those published by Merrill Lynch are based on five years of monthly return data. 5. The Security Risk Evaluation book published by Merrill Lynch uses the __________ as a proxy for the market portfolio. A Dow Jones Industrial Average B Dow Jones Transportation Average C SampP 500 Index D Wilshire 5000 E none of the above Answer: C Difficulty: Easy Rationale: The Merrill Lynch data and much of the other published data sets are based on the SampP 500 index as a market proxy. 6. According to the index model covariances among security pairs are A due to the influence of a single common factor represented by the market index return B extremely difficult to calculate C related to industry-specific events D usually positive E A and D Answer: E Difficulty: Easy Rationale: Most securities move together most of the time and move with a market index or market proxy. Chapter 8 Index Models 165 7. The intercept calculated by Merrill Lynch in the regression equations is equal to A α in the CAPM B α rf1 β C α rf1 - β D 1 - α E none of the above Answer: C Difficulty: Moderate Rationale: The intercept that Merrill Lynch calls alpha is really using the parameters of the CAPM an estimate of a rf 1 - b. The apparent justification for this procedure is that on a monthly basis rf1 - b is small and is apt to be swamped by the volatility of actual stock returns. 8. Analysts may use regression analysis to estimate the index model for a stock. When doing so the slope of the regression line is an estimate of ______________. A the α of the asset B the β of the asset C the σ of the asset D the δ of the asset E none of the above Answer: B Difficulty: Moderate Rationale: The slope of the regression line b measures the volatility of the stock versus the volatility of the market. 9. In a factor model the return on a stock in a particular period will be related to _________. A firm-specific events B macroeconomic events C the error term D both A and B E neither A nor B Answer: D Difficulty: Moderate Rationale: The return on a stock is related to both firm-specific and macroeconomic events. Chapter 8 Index Models 166 10. Rosenberg and Guy found that __________ helped to predict a firms beta. A the firms financial characteristics B the firms industry group C firm size D both A and B E A B and C all helped to predict betas. Answer: E Difficulty: Moderate Rationale: Rosenberg and Guy found that after controlling for the firms financial characteristics the firms industry group was a significant predictor of the firms beta. 11. If the index model is valid _________ would be helpful in determining the...

...SHARPE’S PORTFOLIO THEORY
This model was developed by William Sharpe. According to Sharp’s model, the theory estimates the expected return and variance of indices which may be one or more and are related to economic activity. This theory has come to be known as Market Model.
Sharpe’s single indexmodel will reduce the market related risk and maximize the returns for a given level of risk. Sharpe’s model...

...MultipleChoice
Identify the choice that best completes the statement or answers the question.
_C___ 1. The process of finding present values is frequently called
a.
annualizing
b.
compounding
c.
discounting
d.
leasing
__C__ 2. Finding the compound sum of $1,000 to be received at the beginning of each of the next 5 years requires calculating the
a.
future value of an annuity
b.
present value of an annuity
c.
future...

...Sonali Singh
Psychology 2210
March 28, 2015
Test 2: MultipleChoiceQuestions
1. People from independent cultures are most likely to experience dissonance in situations when they are making decisions for ____________, while people from interdependent cultures are likely to experience dissonance when making decisions for ____________.
a. their friends; themselves
b. themselves; their friends
c. the future; the present
d. the present; the future...

...they offer a lower price than others.
Woolworth operates ‘everyday fresh’ campaign
Problem and the symptoms
Essential to separate the problem from the symptoms
Symptoms is a sign or an indication of something
Advertisement Problem is “any question or matter involving doubt, uncertainty or difficulty. A advertisement problem is issue that must be solved.
Advertisement objectives should
Specific
Concrete measurable task
Existing measurable benchmark
Degree of...

...Chemistry 1 - Foundation
25 MULTIPLECHOICEQUESTIONS (9 pages)
Instruction: Answer all the questions in OMR paper provided.
1. The following species: 2412Mg2+, 2713Al3+, 2010Ne, 199F-, all have the same number of
A. Protons
B. Electrons
C. Neutrons
D. Nucleons
2. A compound contains 24% magnesium, 28% silicon, and 48% oxygen by mass. What is the empirical formula?
A. MgSiO...

...strategy.
32.
4. The Greek gods and goddesses were seen as
a.
distant and removed from the affairs of humankind.
b.
frightening and greedy for harsh sacrifices.
c.
superhuman and immortal, but otherwise anthropomorphic.
d.
role models of wisdom and morality.
e.
purely fictitious, as the Greeks relied on natural philosophy.
Wh
5. What grew well in the dry environment of Greece?
a.
Wheat, barley, and oats
b....

...Chapter 2
Multiple-ChoiceQuestions
1. An individual’s value for a good or service is the:
B. The amount of money he or she is willing to pay.
2. The biggest advantage of capitalism is that:
D. It creates wealth by letting a person follow his or her own self-interest.
3. Wealth-creating transactions are more likely to occur:
D. all of the above
4. Government regulation:
A. provides incentives to conduct business in an illegal...

...MultipleChoiceQuestions
1. The trend from distinct national economic units and toward one huge global market is commonly referred to as:
C. globalization.
2. The merging of historically distinct and separate national markets into one huge global marketplace is referred to as the:
D. globalization of markets.
3. Globalization results in a greater degree of _____ across markets than would be present otherwise.
B. diversity...