mcq - arbitrage pricing theiry
CHAPTER 8 APT
1.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
2.Assume that stock market returns do follow a single-index structure. An investment fund analyzes 500 stocks in order to construct a mean-variance efficient portfolio constrained by 500 investments. They will need to calculate ________ estimates of firm-specific variances and ________ estimates for the variance of the macroeconomic factor.
A. 500; 1
B. 500; 500
C. 124,750; 1
D. 124,750; 500
E. 250,000; 500
3.Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds. If the σ of your portfolio was 0.20 and σM was 0.16, the β of the portfolio would be approximately ________.
A. 0.64
B. 0.80
C. 1.25
D. 1.56
E. none of these
4.Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds. If the σ of your portfolio was 0.18 and σMwas 0.24, the b of the portfolio would be approximately ________.
A. 0.75
B. 0.56
C. 0.07
D. 1.03
E. 0.86
5.The index model has been estimated for stocks A and B with the following results:
RA = 0.01 + 0.5RM + eARB = 0.02 + 1.3RM + eBσM = 0.25 , σ(eA) = 0.20, σ(eB) = 0.10
The covariance between the returns on stocks A and B is ___________.
A. 0.0384
B. 0.0406
C. 0.1920
D. 0.0050
E. 0.4000
6.The expected impact of unanticipated macroeconomic events on a security's return during the period is
A. included in the security's expected return.
B. zero.C. equal to the risk free rate.D. proportional to the firm's beta.E. infinite.7.Covariances between security returns tend to be
A. positive because of SEC regulations.B. positive because of Exchange regulations.C. positive because of economic forces that affect many firms.D. negative because of SEC regulations
E. negative
1.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
2.Assume that stock market returns do follow a single-index structure. An investment fund analyzes 500 stocks in order to construct a mean-variance efficient portfolio constrained by 500 investments. They will need to calculate ________ estimates of firm-specific variances and ________ estimates for the variance of the macroeconomic factor.
A. 500; 1
B. 500; 500
C. 124,750; 1
D. 124,750; 500
E. 250,000; 500
3.Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds. If the σ of your portfolio was 0.20 and σM was 0.16, the β of the portfolio would be approximately ________.
A. 0.64
B. 0.80
C. 1.25
D. 1.56
E. none of these
4.Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds. If the σ of your portfolio was 0.18 and σMwas 0.24, the b of the portfolio would be approximately ________.
A. 0.75
B. 0.56
C. 0.07
D. 1.03
E. 0.86
5.The index model has been estimated for stocks A and B with the following results:
RA = 0.01 + 0.5RM + eARB = 0.02 + 1.3RM + eBσM = 0.25 , σ(eA) = 0.20, σ(eB) = 0.10
The covariance between the returns on stocks A and B is ___________.
A. 0.0384
B. 0.0406
C. 0.1920
D. 0.0050
E. 0.4000
6.The expected impact of unanticipated macroeconomic events on a security's return during the period is
A. included in the security's expected return.
B. zero.C. equal to the risk free rate.D. proportional to the firm's beta.E. infinite.7.Covariances between security returns tend to be
A. positive because of SEC regulations.B. positive because of Exchange regulations.C. positive because of economic forces that affect many firms.D. negative because of SEC regulations
E. negative