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finance homework mcq -Corporate Finance

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Question;Use the;following information to answer the question(s) below.;Assume that the;economy has three types of people. 20%;are fad followers, 75% are passive investors, and 5% are informed traders. The portfolio consisting of all informed;traders has a beta of 1.4 and an expected return of 16%. The market has an expected return of 10% and;the risk-free rate is 4%.;1) The alpha for;the informed investors is closest to;A) -2.4%;B) -0.9%;C) 0.0%;D) 3.6%;2) The alpha for;the passive investors is closest to;A) -2.4%;B) -0.9%;C) 0.0%;D) 3.6%;3) The expected;return for the fad follower's portfolio is closest to;A) 11.5%;B) 12.4%;C) 13.6%;D) 16.0%;Use the;following information to answer the question(s) below.;John Galt is a;mutual fund manager at Atlas Asset Management.;He can generate an alpha of 2% a year up to $500 million of invested;capital. After that amount his skills;are spread too thin, so he cannot add value and his alpha is zero for all;investments over $500 million. Atlas;Asset Management charges a fee of 0.80% on the total amount of money under;management. Assume that there are always;investors looking for positive alpha investments and no investor would invest;in a fund with a negative alpha. Assume that the fund is in equilibrium;meaning that no investor either takes out money or wishes to invest new money;into the fund.;4) The expected;return for the fad follower's portfolio is closest to;A) -0.9%;B) 0.0%;C) 3.6%;D) 6.0%;5) The alpha;that investors in Galt's fund expect to receive is closest to;A) -0.80%;B) 0.00%;C) 0.80%;D) 1.80%;6) The amount of;money that Galt's fund will have under management is closest to;A) $500 million;B) $600 million;C) $1,000;million;D) $1,250;million;7) The amount of;fee income that Galt's fund will generate is closest to;A) $3.75 million;B) $8.00 million;C) $10.00;million;D) $25.00;million;8) A stock's;measures the stock's return relative to that predicted based on its;beta, at the time of some event.;A) excessive;abnormal return;B) cumulative;average return;C) excessive;predicted return;D) cumulative;abnormal return;13.6 Style-Based Anomalies and the Market;Efficiency Debate;Use the;following information to answer the question(s) below.;Stock;Market;Capitalization;Expected;Liquidating;Dividend;Beta;Taggart;Transcontinental;$800;$920;1.10;Rearden Metal;$600;$720;1.20;Wyatt Oil;$1,000;$1,100;0.80;Nielson Motors;$400;$500;1.40;All amounts are;in millions.;1) The;correlation between the expected return and the market capitalization of these;stocks is;A) negative.;B) positive.;C) zero.;D) Unable to;determine with the information given;2) If the;risk-free rate is 3% and the market risk premium is 5%, then the CAPM's;predicted expected return for Wyatt Oil is closest to;A) 7.0%;B) 8.5%;C) 9.0%;D) 9.5%;3) If the;risk-free rate is 3% and the market risk premium is 5%, then the CAPM's;predicted expected return for Wyatt Oil is closest to;A) 8.5%;B) 9.0%;C) 9.5%;D) 10.0%;4) Which of the;following statements is false?;A) If the market;portfolio is efficient, then all securities and portfolios must plot on the;SML, not just individual stocks.;B) For most;stocks the standard errors of the alpha estimates are large, so it is;impossible to conclude that the alphas are statistically different from zero.;C) It is not;difficult to find individual stocks that, in the past have not plotted on the;SML.;D) Small stocks;(those with lower market capitalization) have lower average returns.;5) Which of the;following statements is false?;A) The size;effect is the observation that small stocks have positive alphas.;B) When;considering portfolios formed based on the market-to-book ratio, most of the;portfolios plot below the security market line.;C) The largest;alphas occur in the smallest size deciles.;D) When;considering portfolios formed based on size, although the portfolios with the;higher betas yield higher returns, most size portfolios plot above the security;market line.;6) Which of the;following statements is false?;A) Portfolios;with high market capitalizations will have positive alphas if the market;portfolio is not efficient.;B) The;book-to-market is the observation that firms with high book-to-market ratios;have positive alphas.;C) If the market;portfolio is not efficient, then a portfolio of high book-to-market stocks will;likely have positive alphas.;D) Portfolios;with low book-to-market rations will have negative alphas if the market;portfolio is not efficient.;7) Which of the;following statements is false?;A) A momentum;strategy is one where you buy stocks that have had low past returns and (short);sell stocks that have had high past returns.;B) Over the;years since the discovery of the CAPM, it has become increasing clear to;researchers and practitioners alike that forming portfolios based on market;capitalization, book-to-market ratios, and past returns, one can construct;trading strategies that have a positive alpha.;C) Portfolios;containing firms with the highest realized returns over the previous six months;have positive alphas over the next six months.;D) If the market;portfolio is not efficient, then a portfolio of small stocks will likely have;positive alphas.;Use the figure;for the question(s) below.;Consider the;following graph of the security market line;8) Portfolio;B;A) is less risky;than the market portfolio.;B) is;overpriced.;C) has a;positive alpha.;D) falls above;the SML.;9) Portfolio;A;A) has a;relatively lower expected return than predicted.;B) has a;positive alpha.;C) falls below;the SML.;D) is;overpriced.;10) Portfolio;C;A) is less risky;than the market portfolio.;B) has a relatively;lower expected return than predicted.;C) is;underpriced.;D) has a;negative alpha.;11) Portfolio;D;A) falls below;the SML.;B) has a;negative alpha.;C) is;overpriced.;D) offers an;expected return equal to the risk-free rate.;12) The market;portfolio;A) is;underpriced.;B) has a;positive alpha.;C) is;overpriced.;D) falls on the;SML.;13) Which of the;following statements regarding portfolio "A" is/are correct?;1. Portfolio "A" has a positive alpha.;2. Portfolio "A" is overpriced.;3. Portfolio "A" is less risky than;the market portfolio.;4. Portfolio "A" should not exist if;the market portfolio is efficient.;A) 1 and 2;B) 1, 3, and 4;C) 1 and 3;D) 1, 2, 3, and;4;14) Which of the;following statements regarding portfolio "B" is/are correct?;1. Portfolio "B" has a positive alpha.;2. Portfolio "B" is overpriced.;3. Portfolio "B" is less risky than;the market portfolio.;4. Portfolio "B" should not exist if;the market portfolio is efficient.;A) 2 and 4;B) 4 only;C) 1, 3, and 4;D) 1 and 4;15) Which of the;following statements regarding portfolio "C" is/are correct?;1. Portfolio "C" has a negative alpha.;2. Portfolio "C" is overpriced.;3. Portfolio "C" is less risky than;the market portfolio.;4. Portfolio "C" should not exist if;the market portfolio is efficient.;A) 1 and 3;B) 2 and 4;C) 1, 3, and 4;D) 3 only

 

Paper#49433 | Written in 18-Jul-2015

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