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Question;Assignment Print View http://ezto.mheducation.com/hm.tpx;1.;2.;3.;4.;award;10.00;points;In a;multifactor APT model, the coefficients on the macro factors are often called;systemic risk.;firm-specific risk.;idiosyncratic risk;factor betas.;Multiple Choice;Difficulty: 1 Basic;award;10.00;points;Consider;the multifactor APT with two factors. Stock A has an expected return of 17.6%;a beta of 1.45 on factor 1, and a beta of.86 on factor 2. The risk premium on;the factor 1 portfolio is 3.2%. The risk-free rate of return is 5%. What is the;risk-premium on factor 2 if no arbitrage opportunities exist?;9.26%;3%;4%;7.75%;Multiple Choice;Difficulty: 3 Challenge;award;10.00;points;The;exploitation of security mispricing in such a way that risk-free economic;profits may be earned is called;arbitrage.;capital asset pricing.;factoring.;fundamental analysis.;None of the options;Multiple Choice;Difficulty: 1 Basic;award;10.00;points;Consider;the one-factor APT. The variance of returns on the factor portfolio is 6%. The;beta of a well-diversified portfolio on the factor is 1.1. The variance of;returns on the well-diversified portfolio is approximately;3.6%.;6.0%.;7.3%.;10.1%.;Multiple Choice;Difficulty: 2;Intermediate;1;of 5 02/12/2014;23:51;Assignment Print View http://ezto.mheducation.com/hm.tpx;5.;6.;7.;award;10.00;points;Consider;the multifactor APT with two factors. Stock A has an expected return of 16.4%;a beta of 1.4 on factor 1 and a beta of.8 on factor 2. The risk premium on the;factor 1 portfolio is 3%. The risk-free rate of return is 6%. What is the;risk-premium on factor 2 if no arbitrage opportunities exist?;2%;3%;4%;7.75%;Multiple Choice;Difficulty: 3;Challenge;award;10.00;points;Suppose that two factors have been identified;for the U.S. economy: the growth rate of industrial production, IP, and the;inflation rate, IR. IP is expected to be 2%, and IR 2.0%. A stock with a beta;of 0.9 on IP and 0.4 on IR currently is expected to provide a rate of return of;6%. If industrial production actually grows by 4%, while the inflation rate;turns out to be 4.0%, what is your revised estimate of the expected rate of;return on the stock? (Do not round intermediate;calculations. Round your answer to 1 decimal;place. Omit the "%" sign in your response.);Revised expected rate;of;%;return;Worksheet;Difficulty: 1 Basic;award;10.00;points;Assume that security;returns are generated by the single-index model;Ri=?i+?iRM+ ei;where;Ri is;the excess return for security i and RM;is the market?s excess return. The risk-free rate is 3%. Suppose also that;there are three securities A, B, and C, characterized by;the following data;Security;?i;E(Ri);? i);(e;A;1.5;6%;29%;B;1.7;8;15;C;1.9;10;24;a. If;?M =;26%, calculate the variance of returns of securities A, B, and C.;(Do not round intermediate calculations. Round your answers to the nearest whole;number.);Variance;Security A;Security B;Security C;b. Now;assume that there are an infinite number of assets with return characteristics;identical to those of A, B, and C, respectively. What will;be the mean and variance of excess returns for securities A, B;2;of 5 02/12/2014;23:51;Assignment Print View http://ezto.mheducation.com/hm.tpx;and C? (Enter;the variance answers as a percent squared and mean as a percentage. Do not;round intermediate calculations. Round your answers;to the nearest whole number. Omit the "%" sign in your response.);Mean;Variance;Security A;%;Security B;Security C;Worksheet;Difficulty: 2;Intermediate;award;8.10.00 points;Consider the following;multifactor (APT) model of security returns for a particular stock.;Factor;Factor;Beta;Factor Risk Premium;Inflation;1.0;9%;Industrial;production;0.5;10;Oil;prices;0.2;8;a. If;T-bills currently offer a 8% yield, find the expected rate of return on this;stock if the market views the stock as fairly priced. (Do not round intermediate calculations. Round your answer to;1 decimal place. Omit the "%;sign in your response.);Expected;rate of return;%;b. Suppose;that the market expected the values for the three macro factors given in column;1 below, but that the actual values turn out as given in column 2. Calculate;the revised expectations for the rate of return on the stock once the;surprises" become known. (Do not round;intermediate calculations.;Round your answer to 1 decimal place. Omit the;%" sign in your response.);Expected;Rate of;Actual;Rate;Factor;Change;of;Change;Inflation;8%;8%;Industrial;production;4;10;Oil prices;2;0;Expected rate of;return;%;Worksheet;Difficulty;2 Intermediate;award;9.10.00 points;Suppose;that the market can be described by the following three sources of systematic;risk with associated risk premiums.;Factor Risk;Premium;3;of 5 02/12/2014;23:51;Assignment Print View http://ezto.mheducation.com/hm.tpx;Industrial;production (I);8%;Interest;rates (R);4;Consumer;confidence (C);6;The return on a;particular stock is generated according to the following equation;r= 16% + 1.6I;+ 0.8R+ 1.30C+ e;a-1.Find;the equilibrium rate of return on this stock using the APT. The T-bill rate is;4%. (Do not round intermediate;calculations. Omit the "%" sign in your response.);Equilibrium;rate of return;%;a-2. Is the stock over- or underpriced?;Overpriced;Underpriced;Worksheet;Difficulty: 2;Intermediate;award;10.10.00points;Assume that security;returns are generated by the single-index model;Ri=?i+?iRM+ ei;where Ri;is the excess return for security i and RM;is the market?s excess return. The risk-free rate is 2%. Suppose also that;there are three securities A, B, and C, characterized by;the following data;Security;?i;E(Ri);? i);(e;A;0.8;10%;25%;B;1.0;12;10;C;1.2;14;20;a. If;?M =;20%, calculate the variance of returns of securities A, B, and C.;(Do not round intermediate calculations. Round your answers to the nearest whole;number.);Variance;Security A;Security B;Security C;b. Now;assume that there are an infinite number of assets with return characteristics;identical to those of A, B, and C, respectively. What will;be the mean and variance of excess returns for securities A, B;and C? (Enter the variance answers as a;percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the;nearest whole number. Omit the "%" sign in your response.);Mean;Variance;Security A;%;Security B;%;Security C;%;Worksheet;Difficulty: 2;Intermediate;4;of 5 02/12/2014;23:51;Assignment Print View http://ezto.mheducation.com/hm.tpx;5;of 5 02/12/2014;23:51

 

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