FINA 3500 Exam 1
above the security market line
An underpriced security will plot
βk, βL, standard deviation market (all the above)
If the index model is valid, _____ would be helpful in determining the covariance between assets K and L
the average degree of risk aversion of the investor population and the risk of the market portfolio as a measure by its variance
The risk premium on the market portfolio will be proportional to
sell short the stock X because it is overpriced
The risk-free rate is 4%, The expected market rate of return is 12%. If you expect stock X with a beta of 1.0 to offer a rate of return or 10% you should
the square root of the weighted sum of the securities variances and covariances
The standard deviation of a portfolio of risky securities
I,II, and III
When borrowing and lending at a risk-free rate are allowed, which capital allocation line (CAL) should the investor choose to combine with the efficient frontier
Top-down
Which of the following portfolio construction methods starts with asset allocation
Collateralized debt obligations
_____were designed to concentrate the credit risk of a bundle of loans on one class of investor, leaving the other investments in to pool relatively protected from that risk
a market index, such as S&P 500
A single market index model uses ______ as a proxy for the systematic risk factor
due to the influence of a single common factor represented by the market index return and usually positive
According to the index model, covariances among security pairs are
0
As diversification increases, the firm specific risk of a portfolio approaches
the variance of the market portfolio
As diversification increases, the total variance of a portfolio approaches
drives the interest rate down
Ceteris paribus, a decrease in the demand for loanable funds
equal to the marginal price of risk for the market porfolio
In equilibrium, the marginal price of risk for a risky security must be
all investors are price takers, have the same holding period, and have homogeneous expectations
The CAPM asset pricing model assumes