Finance 360 Exam 3 Review

Question: Conventional finance theory assumes investors are __________, and behavioral finance assumes some systematic __________. Multiple Choice rational; irrationality irrational; rationality greedy; philanthropic behavior philanthropic; irrationality

rational; irrationality

Question: Beta is a measure of __________. Multiple Choice total risk relative systematic risk relative nonsystematic risk relative business risk

relative systematic risk

Question: You invest $1,050 in security A with a beta of 1.2 and $850 in security B with a beta of 0.5. The beta of this portfolio is __________. Multiple Choice 0.60 1.28 0.89 1.70

0.89

Question: The market value weighted-average beta of all firms included in the market index will always be __________. Multiple Choice 0 between 0 and 1 1 none of these options (There is no particular rule concerning the average beta of firms included in the market index.)

1

Question: According to the CAPM, what is the market risk premium given an expected return on a security of 20.0%, a stock beta of 1.8, and a risk-free interest rate of 11%? Multiple Choice 19.80% 9.90% 11.00% 5.00%

5.00%

Models of financial markets that emphasize psychological factors affecting investor behavior are called __________. Multiple Choice data mining fundamental analysis charting behavioral finance

behavioral finance

You know that firm XYZ is very poorly run. On a scale of 1 (worst) to 10 (best), you would give it a score of 3. The market consensus evaluation is that the management score is only 2. Should you buy or sell the stock? multiple choice Buy Sell

buy

Question: A share of stock is now selling for $140. It will pay a dividend of $7 per share at the end of the year. Its beta is 1.0. What must investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 6% and the expected rate of return on the market is 17%.

$156.80

Question: A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 23%, while stock B has a standard deviation of return of 29%. Stock A comprises 70% of the portfolio, while stock B comprises 30% of the portfolio. If the variance of return on the portfolio is 0.042, the correlation coefficient between the returns on A and B is __________. Multiple Choice 0.304 0.213 0.091 0.088

0.304

Question: The expected return of a portfolio is 10.3%, and the risk-free rate is 5%. If the portfolio standard deviation is 17%, what is the reward-to-variability ratio of the portfolio? Multiple Choice 0.39 0.31 0.65 0.69

0.31

Question: Asset A has an expected return of 19% and a standard deviation of 25%. The risk-free rate is 8%. What is the reward-to-variability ratio? Multiple Choice 0.44 0.52 0.75 0.81

0.44

Question: A stock has a correlation with the market of 0.46. The standard deviation of the market is 29%, and the standard deviation of the stock is 37%. What is the stock's beta? Multiple Choice 1.70 0.59 0.36 0.41

0.59

Question:Stock A has a correlation with the market of 0.45. The standard deviation of the market is 21%, and the standard deviation of the stock is 35%. What is the stock's beta? Multiple Choice 1 0.75 0.60 0.55

0.75

Question: Which of the following variables do Fama and French claim do a better job explaining stock returns than beta?1. Book-to-market ratio2. Unexpected change in industrial production3. Firm size Multiple Choice 1 only 1 and 2 only 1 and 3 only 1, 2, and 3

1 and 3 only

Question: What is the expected rate of return for a stock that has a beta of 1 if the expected return on the market is 16%? multiple choice 16% More than 16% Cannot be determined without the risk-free rate

16%

Question:The risk-free rate and the expected market rate of return are 6% and 16%, respectively. According to the capital asset pricing model, the expected rate of return on security X with a beta of 1.2 is equal to __________. Multiple Choice 12% 17% 18% 23%

18%

Question:The variance of the return on the market portfolio is 0.04 and the expected return on the market portfolio is 20%. If the risk-free rate of return is 10%, the market degree of risk aversion, A, is __________. Multiple Choice 0.5 2.5 3.5 5.5

2.5

Question:The variance of the return on the market portfolio is 0.04 and the expected return on the market portfolio is 20%. If the risk-free rate of return is 10%, the market degree of risk aversion, A, is __________. Multiple Choice 0.5 2.5 3.5 5.5

2.5

Question: Stock A has a beta of 1.2, and stock B has a beta of 1. The returns of stock A are __________ sensitive to changes in the market than are the returns of stock B. Multiple Choice 20% more 120% more 20% less 83% less

20% more

Question: Stock A has a beta of 1.2, and stock B has a beta of 1. The returns of stock A are __________ sensitive to changes in the market than are the returns of stock B. Multiple Choice 20% more 120% more 20% less 83% less

20% more

Question: Consider the CAPM. The risk-free rate is 6%, and the expected return on the market is 15%. What is the expected return on a stock with a beta of 1.8? Multiple Choice 33% 31.8% 11.0% 22.2%

22.2%

Question: Security A has an expected rate of return of 12% and a beta of 1.1. The market expected rate of return is 8%, and the risk-free rate is 5%. The alpha of the stock is __________. Multiple Choice −1.7% 3.7% 5.5% 8.7%

3.7%

Question: Even though indexing is growing in popularity, only about __________ of equity in the mutual fund industry is held in indexed funds. This may be a sign that investors and managers __________. Multiple Choice 15%; are excessively conservative 30%; overestimate their ability 15%; suffer from framing biases 30%; engage in mental accounting

30%; overestimate their ability

Question: Assume both portfolios A and B are well diversified, that E(rA) = 12.4% and E(rB) = 13.2%. If the economy has only one factor, and βA = 1 while βB = 1.1, what must be the risk-free rate? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

4.4%

Question:Consider the single factor APT. Portfolio A has a beta of 1.5 and an expected return of 20%. Portfolio B has a beta of 0.7 and an expected return of 16%. The risk-free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio __________. Multiple Choice A;A A;B B;B B;A

A:B

Question: Which of the following case studies illustrates a limit to arbitrage as discussed in the text? Multiple Choice "Siamese twin" companies equity carve-outs closed-end funds All of the options are correct.

All of the options are correct.

Question: The standard deviation of return on investment A is 29%, while the standard deviation of return on investment B is 24%. If the covariance of returns on A and B is 0.006, the correlation coefficient between the returns on A and B is __________. Multiple Choice 0.006 −0.086 0.086 −0.006

Answer: 0.086

Question: Consider two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.2. Stock B has an expected return of 14% and a beta of 1.8. The expected market rate of return is 9% and the risk-free rate is 5%. Security __________ would be considered the better buy because __________. Multiple Choice A; it offers an alpha of .2% A; it offers an alpha of 2.2% B; it offers an alpha of 1.8% B; it offers an alpha of 2.4%

B; it offers an alpha of 1.8%

Question: Which of the following would most appear to contradict the proposition that the stock market is weakly efficient? multiple choice Over 25% of mutual funds outperform the market on average. Insiders earn abnormal trading profits. Every January, the stock market earns abnormal returns.

Every January, the stock market earns abnormal returns.

Question: Assume the return on a market index represents the common factor and all stocks in the economy have a beta of 1. Firm-specific returns all have a standard deviation of 33%.Suppose an analyst studies 20 stocks and finds that one-half have an alpha of 3.1%, and one-half have an alpha of -3.1%. The analyst then buys $1.3 million of an equally weighted portfolio of the positive-alpha stocks and sells short $1.3 million of an equally weighted portfolio of the negative-alpha stocks. Required: a. What is the expected profit (in dollars), and what is the standard deviation of the analyst's profit? (Enter your answers in dollars not in millions. Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

Expected Profit: $80,600 Standard deviation: $191,855

Question: Which of the following statements are true if the efficient market hypothesis holds? multiple choice It implies that future events can be forecast with perfect accuracy. It implies that prices reflect all available information. It implies that security prices change for no discernible reason. It implies that prices do not fluctuate.

It implies that prices reflect all available information.

Question: Which of the following observations would provide evidence against the semistrong form of the efficient market theory? multiple choice Mutual fund managers do not on average make superior returns. You cannot make superior profits by buying (or selling) stocks after the announcement of an abnormal rise in dividends. Low P/E stocks tend to have positive abnormal returns. In any year approximately 50% of mutual funds outperform the market.

Low P/E stocks tend to have positive abnormal returns.

Question: The expected return on the market portfolio is 18%. The risk-free rate is 11%. The expected return on SDA Corporation common stock is 17%. The beta of SDA Corporation common stock is 1.30. Within the context of the capital asset pricing model, __________. Multiple Choice SDA Corporation stock is underpriced SDA Corporation stock is fairly priced SDA Corporation stock's alpha is -3.10% SDA Corporation stock's alpha is 3.1%% Answer: SDA Corporation stock's alpha is -3.10%

SDA Corporation stock's alpha is -3.10%

Question: The expected return on the market portfolio is 19%. The risk-free rate is 12%. The expected return on SDA Corporation common stock is 18%. The beta of SDA Corporation common stock is 1.40. Within the context of the capital asset pricing model, __________. Multiple Choice SDA Corporation stock is underpriced SDA Corporation stock is fairly priced SDA Corporation stock's alpha is -3.80% SDA Corporation stock's alpha is 3.8%

SDA Corporation stock's alpha is -3.80%

When a stock price breaks through the moving average from below, this is considered to be __________. Multiple Choice the starting point for a new moving average a bearish signal a bullish signal None of these options is correct.

a bullish signal

A support level is __________. Multiple Choice a level beyond which the market is unlikely to rise a level below which the market is unlikely to fall an equilibrium price level justified by characteristics such as earnings and cash flows the peak of a market wave or cycle

a level below which the market is unlikely to fall

Question:A stock's alpha measures the stock's __________. Multiple Choice expected return abnormal return excess return residual return

abnormal return

Question: In the context of a point and figure chart, a horizontal band of Xs and Os is a __________. Multiple Choice buy signal sell signal congestion area trend reversal

congestion area

If investors are too slow to update their beliefs about a stock's future performance when new evidence arises, they are exhibiting __________. Multiple Choice representativeness bias framing error conservatism memory bias

conservatism

Question:Stock prices that are stable over time __________. Multiple Choice indicate that prices are useful indicators of true economic value indicate that the market has not incorporated new information into current stock prices ensure that an economy allocates its resources efficiently indicates that returns follow a random-walk process

indicate that the market has not incorporated new information into current stock prices

Question:The cumulative tally of the number of advancing stocks minus declining stocks is called the __________. Multiple Choice market breadth market volume trin ratio relative strength ratio

market breadth

Question: Beta is a measure of security responsiveness to __________. Multiple Choice firm-specific risk diversifiable risk market risk unique risk

market risk

Question: In a single-factor market model the beta of a stock ________. Multiple Choice measures the stock's contribution to the standard deviation of the market portfolio measures the stock's unsystematic risk changes with the variance of the residuals measures the stock's contribution to the standard deviation of the stock

measures the stock's contribution to the standard deviation of the market portfolio

Question:Security X has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5%, and the market expected rate of return is 15%. According to the capital asset pricing model, security X is __________. Multiple Choice fairly priced overpriced underpriced None of these answers are correct.

overpriced

The price of a stock fluctuates between $43 and $60. If the time frame referenced encompasses the primary trend, the $43 price may be considered the __________. Multiple Choice intermediate trend level minor trend level resistance level support level

support level

Question:Random price movements indicate __________. Multiple Choice irrational markets that prices cannot equal fundamental values that technical analysis to uncover trends can be quite useful that markets are functioning efficiently

that markets are functioning efficiently

Question: The values of beta coefficients of securities are __________. Multiple Choice always positive always negative always between positive 1 and negative 1 usually positive but are not restricted in any particular way

usually positive but are not restricted in any particular way

Question: The values of beta coefficients of securities are __________. Multiple Choice - always positive - always negative - always between positive 1 and negative 1 - usually positive but are not restricted in any particular way

usually positive but are not restricted in any particular way

Question: In his famous critique of the CAPM, Roll argued that the CAPM __________. Multiple Choice is not testable because the true market portfolio can never be observed is of limited use because systematic risk can never be entirely eliminated should be replaced by the APT should be replaced by the Fama-French three-factor model

is not testable because the true market portfolio can never be observed

If investors are too slow to update their beliefs about a stock's future performance when new evidence arises, they are exhibiting __________. Multiple Choice representativeness bias framing error conservatism memory bias

memory bias

Question: An investor holds a very conservative portfolio invested for retirement, but she takes some extra cash she earned from her year-end bonus and buys gold futures. She appears to be engaging in __________. Multiple Choice overconfidence representativeness forecast errors mental accounting

mental accounting

Question: Trading activity and average returns in brokerage accounts tend to be __________. Multiple Choice uncorrelated negatively correlated positively correlated positively correlated for women and negatively correlated for men

negatively correlated

Question: Among the important characteristics of market efficiency is (are) that:1. There are no arbitrage opportunities.2. Security prices react quickly to new information.3. Active trading strategies will not consistently outperform passive strategies. Multiple Choice 1 only 2 only 1 and 3 only 1, 2, and 3

1, 2, and 3

Question: You have a $59,000 portfolio consisting of Intel, GE, and Con Edison. You put $23,600 in Intel, $15,600 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have betas of 1.3, 1, and 0.8, respectively. What is your portfolio beta? Multiple Choice 1.053 0.992 0.810 1.369

1.053

Question: You have a $45,000 portfolio consisting of Intel, GE, and Con Edison. You put $21,200 in Intel, $10,000 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have betas of 1.3, 1, and 0.8, respectively. What is your portfolio beta? Multiple Choice 1.080 0.968 0.831 1.404

1.080

Question: You invest $600 in security A with a beta of 1.5 and $400 in security B with a beta of 0.90. The beta of this portfolio is __________. Multiple Choice 1.14 1.20 1.26 1.55

1.55

Question: Consider the capital asset pricing model. The market degree of risk aversion, A, is 3. The market portfolio risk is 2.25%. If the risk-free rate of return is 4%, the expected return on the market portfolio is __________. Multiple Choice 6.75% 9.25% 10.75% 12.00%

10.75

Question: According to the CAPM, what is the expected market return given an expected return on a security of 15.2%, a stock beta of 1.4, and a risk-free interest rate of 4%? Multiple Choice 10.9% 15.7% 5.6% 12%

12%

Question: According to the CAPM, what is the expected market return given an expected return on a security of 17.2%, a stock beta of 1.7, and a risk-free interest rate of 7%? Multiple Choice 10.1% 17.3% 11.9% 13%

13%

Question:Consider the CAPM. The risk-free rate is 3%, and the expected return on the market is 12%. What is the expected return on a stock with a beta of 1.9? Multiple Choice 26% 25.5% 7.7% 20.1%

20.1%

Question: Consider the CAPM. The expected return on the market is 15%. The expected return on a stock with a beta of 1.5 is 20%. What is the risk-free rate? Multiple Choice 6% 13% 5% 8%

5%

Question: According to the CAPM, what is the market risk premium given an expected return on a security of 17.0%, a stock beta of 1.4, and a risk-free interest rate of 10%? Multiple Choice 14.00% 7.70% 10.00% 5.00%

5.00%

Question: Semitool Corporation has an expected excess return of 6% for next year. However, for every unexpected 1% change in the market, Semitool's return responds by a factor of 1.2. Suppose it turns out that the economy and the stock market do better than expected by 1.5% and Semitool's products experience more rapid growth than anticipated, pushing up the stock price by another 1%. Based on this information, what was Semitool's actual excess return? Multiple Choice 7.00% 8.50% 8.80%

8.80%

Question:Which of the following phenomena would be either consistent with or a violation of the efficient market hypothesis? a. Nearly half of all professionally managed mutual funds are able to outperform the S&P 500 in a typical year. multiple choice 1 Consistent Violation b. Money managers who outperform the market (on a risk-adjusted basis) in one year are likely to outperform in the following year. multiple choice 2 Consistent Violation c. Stock prices tend to be predictably more volatile in January than in other months. multiple choice 3 Consistent Violation d. Stock prices of companies that announce increased earnings in January tend to outperform the market in February. multiple choice 4 Consistent Violation e. Stocks that perform well in one week perform poorly in the following week. multiple choice 5 Consistent Violation

A - Consistent B - Violation C - Consistent D - Violation E - Violation

Question: In an efficient market, professional portfolio management can offer all of the following benefits except which of the following? multiple choice Low-cost diversification. A targeted risk level. Low-cost record keeping. A superior risk-return trade-off.

A superior risk-return trade-off.

Question: An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 11% and a standard deviation of return of 18.0%. Stock B has an expected return of 7% and a standard deviation of return of 3%. The correlation coefficient between the returns of A and B is 0.50. The risk-free rate of return is 5%. The proportion of the optimal risky portfolio that should be invested in stock A is __________. Multiple Choice 0% 50% 32% 55%

Answer: 0%

Question: Required: a. Stocks with a beta of zero offer an expected rate of return of zero. multiple choice 1 True False b. The CAPM implies that investors require a higher return to hold highly volatile securities. multiple choice 2 True False c. You can construct a portfolio with a beta of 0.75 by investing 0.75 of the investment budget in T-bills and the remainder in the market portfolio. multiple choice 3 True False

Answer: A: False B: False C: False

Question:The expected return of the risky-asset portfolio with minimum variance is __________. Multiple Choice the market rate of return zero the risk-free rate The answer cannot be determined from the information given.

The answer cannot be determined from the information given.

Question: The market price of a security is $40. Its expected rate of return is 13%. The risk-free rate is 7%, and the market risk premium is 8%. What will the market price of the security be if its beta doubles (and all other variables remain unchanged)? Assume the stock is expected to pay a constant dividend in perpetuity.

Market Price: $27.37

Question: Beta is a measure of security responsiveness to __________. Multiple Choice firm-specific risk diversifiable risk market risk unique risk

Market Risk

Question: Suppose that, after conducting an analysis of past stock prices, you come up with the following observations. Which would appear to contradict the weak form of the efficient market hypothesis? multiple choice The average rate of return is significantly greater than zero. The correlation between the return during a given week and the return during the following week is zero. One could have made superior returns by buying stock after a 10% rise in price and selling after a 10% fall. One could have made higher-than-average capital gains by holding stocks with low dividend yields.

One could have made superior returns by buying stock after a 10% rise in price and selling after a 10% fall.

Question: According to the CAPM, investors are compensated for all but which of the following? Multiple Choice Expected inflation Systematic risk Time value of money Residual risk

Residual risk

Question: Investors expect the market rate of return this year to be 15.00%. The expected rate of return on a stock with a beta of 1.3 is currently 19.50%. If the market return this year turns out to be 12.80%, how would you revise your expectation of the rate of return on the stock? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

Revised Rate of Return: 16.6% The expected rate of return on the stock will change by beta times the unanticipated change in the market return: 1.3 × (0.128 − 0.150) = −2.860% Therefore, the expected rate of return on the stock should be revised to: 0.195 − 0.029 = 16.6%

Question: Which of the following beliefs would not preclude charting as a method of portfolio management? Multiple Choice The market is strong-form efficient. The market is semistrong-form efficient. The market is weak-form efficient. Stock prices follow recurring patterns.

Stock prices follow recurring patterns.

Question: Which of the following sources of market inefficiency would be most easily exploited? multiple choice A stock price drops suddenly due to a large block sale by an institution. A stock is overpriced because traders are restricted from short sales. Stocks are overvalued because investors are exuberant over increased productivity in the economy.

Stocks are overvalued because investors are exuberant over increased productivity in the economy.

Question: Which version of the efficient market hypothesis focuses on the most inclusive set of information? multiple choice Strong-form Semistrong-form Weak-form

Strong-form

Question: Kaskin, Incorporated, stock has a beta of 1.2 and Quinn, Incorporated, stock has a beta of 0.6. Which of the following statements is most accurate? multiple choice The equilibrium expected rate of return is higher for Kaskin than for Quinn. The stock of Kaskin has more total risk than Quinn. The stock of Quinn has more systematic risk than that of Kaskin.

The equilibrium expected rate of return is higher for Kaskin than for Quinn.

Question: You are an investment manager who is currently managing assets worth $6 billion. You believe that active management of your fund could generate an additional one-tenth of 1% return on the portfolio. If you want to make sure your active strategy adds value, how much can you spend on security analysis? Multiple Choice Up to $12,000,000 Up to $6,000,000 Up to $3,000,000 $0

Up to $6,000,000 Explanation 0.001 × $6,000,000,000 = $6,000,000. Maximum amount that can be spent on security analysis is $6,000,000.

Question: You are constructing a scatter plot of excess returns for stock A versus the market index. If the correlation coefficient between stock A and the index is -1, you will find that the points of the scatter diagram __________ and the line of best fit has a __________. Multiple Choice all fall on the line of best fit; positive slope all fall on the line of best fit; negative slope are widely scattered around the line; positive slope are widely scattered around the line; negative slope

all fall on the line of best fit; negative slope

Assume that a company announces unexpectedly high earnings in a particular quarter. In an efficient market one might expect __________. Multiple Choice an abnormal price change immediately after the announcement an abnormal price increase before the announcement an abnormal price decrease after the announcement no abnormal price change before or after the announcement

an abnormal price change immediately after the announcement

Question: Assume that both X and Y are well-diversified portfolios and the risk-free rate is 8%. Portfolio X has an expected return of 14% and a beta of 1. Portfolio Y has an expected return of 9.5% and a beta of 0.25. In this situation, you would conclude that portfolios X and Y ________. Multiple Choice are in equilibrium offer an arbitrage opportunity are both underpriced are both fairly priced

are in equilibrium

Following a period of falling prices, the moving average will __________. Multiple Choice be below the current price be above the current price be equal to the current price become more volatile than it had been before prices fell

be above the current price

Question: The SML is valid for __________, and the CML is valid for __________. Multiple Choice only individual assets; well-diversified portfolios only only well-diversified portfolios; only individual assets both well-diversified portfolios and individual assets; both well-diversified portfolios and individual assets both well-diversified portfolios and individual assets; well-diversified portfolios only

both well-diversified portfolios and individual assets; well-diversified portfolios only

Question: The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of 0.8 to offer a rate of return of 12%, then you should __________. Multiple Choice buy stock X because it is overpriced buy stock X because it is underpriced sell short stock X because it is overpriced sell short stock X because it is underpriced

buy stock X because it is underpriced

Question: The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of 0.8 to offer a rate of return of 12%, then you should __________. Multiple Choice buy stock X because it is overpriced buy stock X because it is underpriced sell short stock X because it is overpriced sell short stock X because it is underpriced

buy stock X because it is underpriced

Question: The _________ is the covariance divided by the product of the standard deviations of the returns on each fund. Multiple Choice covariance correlation coefficient standard deviation reward-to-variability ratio

correlation coefficient

Question: According to the CAPM, the risk premium an investor expects to receive on any stock or portfolio is __________. Multiple Choice directly related to the risk aversion of the particular investor inversely related to the risk aversion of the particular investor directly related to the beta of the stock inversely related to the alpha of the stock

directly related to the beta of the stock

Technical analysis focuses on __________. Multiple Choice finding opportunities for risk-free investing finding repeating trends and patterns in prices changing prospects for earnings growth of particular firms or industries forecasting technical regulatory changes

finding repeating trends and patterns in prices

If investors overweight recent performance in forecasting the future, they are exhibiting __________. Multiple Choice representativeness bias framing error memory bias overconfidence

representativeness bias

Your two best friends each tell you about a person they know who successfully started a small business. That's it, you decide; if they can do it, so can you. This is an example of __________. Multiple Choice mental accounting framing bias conservatism representativeness bias

representativeness bias

Question: The measure of unsystematic risk can be found from an index model as __________. Multiple Choice residual standard deviation R-square degrees of freedom sum of squares of the regression

residual standard deviation

Question: The plot of a security's excess return relative to the market's excess return is called the __________. Multiple Choice efficient frontier security characteristic line capital allocation line capital market line

security characteristic line

Question: An investor should do which of the following for stocks with negative alphas? Multiple Choice Go long Sell short Hold Do nothing

sell short

Which of the following is considered a sentiment indicator? Multiple Choice a 200-day moving average short interest credit balances in brokerage accounts relative strength

short interest

Question: The term random walk is used in investments to refer to __________. Multiple Choice stock price changes that are random but predictable stock prices that respond slowly to both old and new information stock price changes that are random and unpredictable stock prices changes that follow the pattern of past price changes

stock price changes that are random and unpredictable

Question: According to capital asset pricing theory, the key determinant of portfolio returns is __________. Multiple Choice the degree of diversification the systematic risk of the portfolio the firm-specific risk of the portfolio economic factors

the systematic risk of the portfolio