## Mirror for Humanity Study Set 1

Anthropology

## Quiz 9 :

Multifactor Models of Risk and Return

Looking for Cultural Anthropology Homework Help?

Q04 Q04 Q04

Exhibit 10.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following year end information for All Systems Corporation.
-Findings by Fama and French that stocks with high Book Value to Market Price ratios tended to produce larger risk adjusted returns than stocks with low Book Value to Market Price ratios challenge the efficacy of the CAPM.

Free

Unlocked

True False

Q05 Q05 Q05

Exhibit 10.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following year end information for All Systems Corporation.
-Findings by Basu that stocks with high P/E ratios tended to outperform stocks with low P/E ratios challenge the efficacy of the CAPM.

Free

Unlocked

True False

Q10 Q10 Q10

Exhibit 10.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following year end information for All Systems Corporation.
-Empirical tests of the APT model have found that as the size of a portfolio increased so did the number of factors.

Free

Unlocked

True False

Q11 Q11 Q11

Exhibit 10.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following year end information for All Systems Corporation.
-Multifactor models of risk and return can be broadly grouped into models that use macroeconomic factors and models that use microeconomic factors.

Free

Unlocked

True False

Q15 Q15 Q15

Exhibit 10.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following year end information for All Systems Corporation.
-One method for estimating the parameters for the Capital Asset Pricing Model is to estimate a portfolio's characteristic line via regression techniques using the single-index market model.

Free

Unlocked

True False

Q17 Q17 Q17

Exhibit 10.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following year end information for All Systems Corporation.
-Two approaches to defining factors for multifactor models are to use macroeconomic variables or individual characteristics of the securities.

Free

Unlocked

True False

Q24 Q24 Q24

Exhibit 9.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
-In one of their empirical tests of the APT, Roll and Ross examined the relationship between a security's returns and its own standard deviation. A finding of a statistically significant relationship would indicate that

Free

Unlocked

Multiple Choice

Q46 Q46 Q46

Consider a two-factor APT model where the first factor is changes in the 30-year T-bond rate, and the second factor is the percent growth in GNP. Based on historical estimates you determine that the risk premium for the interest rate factor is 0.02, and the risk premium on the GNP factor is 0.03. For a particular asset, the response coefficient for the interest rate factor is 1.2, and the response coefficient for the GNP factor is 0.80. The rate of return on the zero-beta asset is 0.03. Calculate the expected return for the asset.

Free

Unlocked

Multiple Choice

Q47 Q47 Q47

Exhibit 9.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas).
The zero-beta return (

_{0}) = 3%, and the risk premia are _{1}= 10%, _{2}= 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2. The expected returns for stock X, stock Y, and stock Z areFree

Unlocked

Multiple Choice

Q48 Q48 Q48

Exhibit 9.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas).
The zero-beta return (

_{0}) = 3%, and the risk premia are _{1}= 10%, _{2}= 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2. The expected prices one year from now for stocks X, Y, and Z areFree

Unlocked

Multiple Choice

Q49 Q49 Q49

Exhibit 9.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas).
The zero-beta return (

_{0}) = 3%, and the risk premia are _{1}= 10%, _{2}= 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2. If you know that the actual prices one year from now are stock X $55, stock Y $52, and stock Z $57, thenFree

Unlocked

Multiple Choice

Q50 Q50 Q50

Exhibit 9.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas).
The zero-beta return (

_{0}) = 3%, and the risk premia are _{1}= 10%, _{2}= 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2. Assume that you wish to create a portfolio with no net wealth invested. The portfolio that achieves this has 50% in stock X, 100% in stock Y, and 50% in stock Z. The weighted exposure to risk factor 1 for stocks X, Y, and Z areFree

Unlocked

Multiple Choice

Q51 Q51 Q51

Exhibit 9.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas).
The zero-beta return (

_{0}) = 3%, and the risk premia are _{1}= 10%, _{2}= 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2. Assume that you wish to create a portfolio with no net wealth invested. The portfolio that achieves this has 50% in stock X, 100% in stock Y, and 50% in stock Z. The weighted exposure to risk factor 2 for stocks X, Y, and Z areFree

Unlocked

Multiple Choice

Q52 Q52 Q52

Exhibit 9.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas).
The zero-beta return (

_{0}) = 3%, and the risk premia are _{1}= 10%, _{2}= 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2. Assume that you wish to create a portfolio with no net wealth invested and the portfolio that achieves this has 50% in stock X, 100% in stock Y, and 50% in stock Z. The net arbitrage profit isFree

Unlocked

Multiple Choice

Q53 Q53 Q53

Exhibit 9.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas).
The zero-beta return (

_{0}) = 3%, and the risk premia are _{1}= 10%, _{2}= 8%. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 9.2. The new prices now for stocks X, Y, and Z that will not allow for arbitrage profits areFree

Unlocked

Multiple Choice

Q54 Q54 Q54

The table below provides factor risk sensitivities and factor risk premia for a three factor model for a particular asset where factor 1 is MP the growth rate in U.S. industrial production, factor 2 is UI the difference between actual and expected inflation, and factor 3 is UPR the unanticipated change in bond credit spread. Calculate the expected excess return for the asset.

Free

Unlocked

Multiple Choice

Q55 Q55 Q55

Exhibit 9.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks A, B, and C have two risk factors with the following beta coefficients. The zero-beta return (

_{0}) = .025 and the risk premiums for the two factors are (_{1}) = .12 and (_{0}) = .10. -Refer to Exhibit 9.3. Calculate the expected returns for stocks A, B, C. A B CFree

Unlocked

Multiple Choice

Q56 Q56 Q56

Exhibit 9.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks A, B, and C have two risk factors with the following beta coefficients. The zero-beta return (

_{0}) = .025 and the risk premiums for the two factors are (_{1}) = .12 and (_{0}) = .10. -Refer to Exhibit 9.3. Assume that stocks A, B, and C never pay dividends and stocks A, B, and C are currently trading at $10, $20, and $30, respectively. What is the expected price next year for each stock? A B CFree

Unlocked

Multiple Choice

Q57 Q57 Q57

Exhibit 9.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks A, B, and C have two risk factors with the following beta coefficients. The zero-beta return (

_{0}) = .025 and the risk premiums for the two factors are (_{1}) = .12 and (_{0}) = .10. -Refer to Exhibit 9.3. Suppose that you know that the prices of stocks A, B, and C will be $10.95, 22.18, and $30.89, respectively. Based on this informationFree

Unlocked

Multiple Choice