Question 1

Is it possible to invest more than 100 percent of your available funds?

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Question 2

If two stocks had the same beta,but Stock A had high non-systematic risk and Stock B had low non-systematic risk,would rational investors expect a higher return from holding one of these securities?

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Question 3

Given the following information:
  
a) What are the average monthly returns on Stock X and the S&P TSX?
b) What are the standard deviations of the monthly returns on Stock X and the S&P TSX?
c) What is the covariance of the returns on Stock X and the S&P TSX?
d) What is the beta of Stock X?
e) What is the implied risk-free rate?

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a) What...

Question 4

"There may be some truth in the CAPM,but my sister-in-law bought a stock last year that earned a 20 percent return,much higher than what was expected using the CAPM." Evaluate this criticism.

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Question 5

You have two portfolios,A and B.Portfolio A has an expected return of 20 percent and a beta of 1.4.Portfolio B has an expected return of 25 percent and a beta of 1.2.Is this scenario consistent with the CAPM? Why or why not?

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Question 6

The risk-free rate is 4 percent.The expected return on the market portfolio is 12 percent with a standard deviation of 16 percent.Which security is over,under,or correctly priced?

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Question 7

What is the role of the risk-free asset in the efficient portfolio?

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Question 8

Stock ABC is currently selling for $16.72.It has just paid an annual dividend of $0.80 per share,which is expected to grow at 4.5 percent indefinitely.The risk-free rate is 6 percent.The expected return on the market portfolio is 14 percent with a standard deviation of 17 percent.
a) What is the expected return on Stock ABC?
b) Is Stock ABC overpriced, underpriced, or correctly priced if it has a beta of 0.6?
c) Is Stock ABC above, below, or on the SML?
d) What is the equilibrium price of Stock ABC? Assume the dividend grow rate remains at 4.5 percent.

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Question 9

What is the difference between CAPM and APT?

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Question 10

How do you explain a stock that earns a return higher than the required rate of return from the CAPM?

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Question 11

Explain the separation theorem.

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Question 12

What is beta?

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Question 13

What is the difference between the capital market line (CML)and the security market line (SML)?

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Quiz 9: The Capital Asset Pricing Model Capm