Chapter 11 An Alternative View of Risk and Return: The Arbitrage Pricing Theory Multiple Choice Questions
1. Both the APT and the CAPM imply a positive relationship between expected return and risk. The
APT views risk
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A) very similarly to the CAPM via the beta of the curity.
B) in terms of individual intercurity correlation versus the beta of the CAPM.
幼儿童话C) via the industry wide or marketwide factors creating correlation between curities.
D) the standardized deviation of the covariance.
E) None of the above.
Answer: C Difficulty: Easy Page: 297
2. In the equation R = R + U, the three symbols stand for:
蛋黄豆腐A) average return, expected return, and unexpected return.
B) required return, expected return, and unbiad return.
C) actual total return, expected return, and unexpected return.
D) required return, expected return, and unbiad risk.
E) risk, expected return, and unsystematic risk.
Answer: C Difficulty: Easy Page: 298
3. Which of the following is true about the impact on market price of a curity when a company
makes an announcement and the market has discounted the news?
A) The price will change a great deal; even though the impact is primarily in the future, the future
value is discounted to the prent.
B) The price will change little, if at all, since the impact is primarily in the future.
C) The price will change little, if at all, since the market considers this information unimportant.
D) The price will change little, if at all, since the market considers this information untrue.
E) The price will change little, if at all, since the market has already included this information in
the curity's price.
Answer: E Difficulty: Easy Page: 298
4. Shareholders discount many corporate announcements becau of their prior expectations. If an
announcement caus the price to change it will mostly be driven by六年级学习计划
A) the expected part of the announcement.
B) market inefficiency.
C) the unexpected part of the announcement.
D) the systematic risk.
乌镇景区E) None of the above.
Answer: C Difficulty: Medium Page: 299
5. The unexpected return on a curity, U, is made up of
A) market risk and systematic risk.
B) systematic risk and idiosyncratic risk.
C) idiosyncratic risk and unsystematic risk.
D) expected return and market risk.
E) expected return and idiosyncratic risk.
Answer: B Difficulty: Medium Page: 300
6. Systematic risk is defined as
A) a risk that specifically affects an ast or small group of asts.
B) any risk that affects a large number of asts.
C) any risk that has a huge impact on the return of a curity.
D) the random component of return.
E) None of the above.
Answer: B Difficulty: Easy Page: 299
7. A company owning gold mines will probably have a _____ inflation beta becau an ___ increa
in inflation is usually associated with an increa in gold prices.
A) negative; anticipated
B) positive; anticipated
C) negative; unanticipated
D) positive; unanticipated
E) None of the above.
Answer: D Difficulty: Medium Page: 301
8. If company A, a medical rearch company, makes a new product discovery and their stock ris
5% this will have
A) no effect on Company B's, a newspaper, stock price becau it is a systematic risk element.
B) no effect on Company B's, a newspaper, stock price becau it is an unsystematic risk element.
C) a large effect on Company B's, a newspaper, stock price becau it is a systematic risk element.
D) a large effect on Company B's, a newspaper, stock price becau it is an unsystematic risk
element.
E) None of the above.
Answer: B Difficulty: Easy Page: 299
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9. The term Corr(åR , åT ) = 0 tells us that
A) all error terms of company R and T are 0.
B) the unsystematic risk of companies R and T is unrelated or uncorrelated.
C) the correlation between the returns of companies R and T is -1.
D) the systematic risk companies R and T is unrelated.
E) None of the above.
Answer: B Difficulty: Medium Page: 300
10. What would not be true about a GNP beta?
A) If a stock's βGNP = 1.5, the stock will experience a 1.5% increa for every 1% surpri
increa in GNP.
B) If a stock's βGNP = -1.5, the stock will experience a 1.5% decrea for every 1% surpri
increa in GNP.
C) It is a measure of risk.
D) It measures the impact of systematic risk associated with GNP.
E) None of the above.
Answer: E Difficulty: Medium Page: 301-302
11. The systematic respon coefficient for productivity, βP, would produce an unexpected change in
any curity return of __ βP if the expected rate of productivity was 1.5% and the actual rate was
2.25%.
A) 0.75%
B) -0.75%
C) 2.25%
D) -2.25%
E) 1.5%
Answer: A Difficulty: Medium Page: 302
Rationale:
R i = βP F P = βP(2.25- 1.5)= 0.75 βP
12. If the expected rate of inflation was 3% and the actual rate was 6.2%; the systematic respon本人自评
coefficient from inflation, βI , would result in a change in any curity return of ___βI .
A) 9.2
B) 3.2
C) -3.2
D) 3.0
E) 6.2
Answer: B Difficulty: Easy Page: 302
13. A factor is a variable that
A) affects the returns of risky asts in a systematic fashion.
B) affects the returns of risky asts in an unsystematic fashion.
C) correlates with risky ast returns in a unsystematic fashion.
D) does not correlate with the returns of risky asts in an systematic fashion.
E) None of the above.
Answer: A Difficulty: Easy Page: 302
14. In a portfolio of risk y asts, the respon to a factor, F i , can be determined by
A) summing the weighted βi s and multiplying by the factor F i.
B) summing the F i s.
C) adding the average weighted expected returns.
D) Summing the weighted random errors.
E) All of the above.
Answer: A Difficulty: Medium Page: 305
15. In the one factor (APT) model, the characteristic line to estimate βi pass through the origin,
unlike the estimate ud in the CAPM becau
A) the relationship is between the actual return on a curity and the market index.
B) the relationship measures the change in the curity return over time versus the change in the
market return.
C) the relationship measures the change in excess return on a curity versus GNP.
D) the relationship measures the change in excess return on a curity versus the return on the
factor about its mean of zero.
E) Cannot be determined without actual data.
Answer: D Difficulty: Hard Page: 304
16. The betas along with the factors in the APT adjust the expected return for
A) calculation errors.
B) unsystematic risks.
C) spurious correlations of factors.
D) differences between actual and expected levels of factors.
E) All of the above.
Answer: D Difficulty: Hard Page: 303
17. The single factor APT model that rembles the market model us____________ as the single
factor.
A) arbitrage fees
B) GNP
C) the inflation rate
D) the market return
E) the risk-free return
Answer: D Difficulty: Easy Page: 303
18. Assume that the single factor APT model applies and a portfolio exists such that 2/3 of the funds are
invested in Security Q and the rest in the risk-free ast. Security Q has a beta of 1.5. The portfolio has a beta of
A) 0.00
B) 0.50
C) 0.75
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D) 1.00
E) 1.50
Answer: D Difficulty: Medium Page: 305
Rationale:
2/3(1.5) + 1/3(0) = 1.0 + 0 = 1.0
19. For a diversified portfolio including a large number of stocks, the
A) weighted average expected return goes to zero.
B) weighted average of the betas goes to zero.
C) weighted average of the unsystematic risk goes to zero.
D) return of the portfolio goes to zero.
E) return on the portfolio equals the risk-free rate.
Answer: C Difficulty: Easy Page: 306
20. Which of the following statements is true?
A) A well-diversified portfolio has negligible systematic risk.
B) A well-diversified portfolio has negligible unsystematic risk.
C) An individual curity has negligible systematic risk.
D) An individual curity has negligible unsystematic risk.
E) Both A and D.
Answer: B Difficulty: Easy Page: 306
21. The acronym APT stands for
A) Arbitrage Pricing Techniques.
B) Absolute Profit Theory.
C) Arbitrage Pricing Theory.
D) Ast Puting Theory.
E) Assured Price Techniques.
Answer: C Difficulty: Easy Page: 297
22. The acronym CAPM stands for
A) Capital Ast Pricing Model.
B) Certain Arbitrage Pressure Model.
C) Current Arbitrage Prices Model.
D) Cumulative Ast Price Model.
E) None of the above.
Answer: A Difficulty: Easy Page: 297
