31. Your opinion is that Boeing has an expected rate of return of 0.112. It has a beta of 0.92. The riskfree rate is 0.04 and the market expected rate of return is 0.10. According to the Capital Asset Pricing Model, this security is ‘A.underpriced. 8. overpriced, . fairly priced. . cannot be determined from data provided. E. none of the above. 32. Your opinion is that Boeing has an expected rate of return of 0.0952. Ithas a beta of 0.92. The risk- free rate Is 0.04 and the market expected rate of return is 0.10. According to the Capital Asset Pricing. Model, this security is ‘A. underpriced 8. overpriced. . fairly priced. D. cannot be determined from data provided. E. none of the above. 33, Your opinion is that Boeing has an expected rate of return of 0.08. thas a beta of 0.92. The risk-free rate is 0.04 and the market expected rate of return is 0.10. According to the Capital Asset Pricing Model, this security is A. underpriced 8. overpriced. . fairly priced. 0. cannot be determined from data provided, none of the above, 34, Asa financial analyst, you are tasked with evaluating a capital budgeting project. You were instructed to.use the IRR method and you need to determine an appropriate hurdle rate. The risk-free rate is 4 percent and the expected market rate of return is 11 percent. Your company has a beta of 1.0 and the project that you are evaluating is considered to have risk equal to the average project that the company hhas accepted in the past. According to CAPM, the appropriate hurdle rate would be____%. Aa 8.7 cs Dat E41 35. As@ financial analyst, you are tasked with evaluating a capital budgeting project. You were instructed ‘touse the IRR method and you need to determine an appropriate hurdle rate. The risk-free rate is 4 percent and the expected market rate of return is 11 percent. Your company has a beta of 1.4 and the project that you are evaluating is considered to have risk equal to the average project that the company hhas accepted in the past. According to CAPM, the appropriate hurdle rate would be____%. ABS 8.7 C15 0.4 e14436. Asa financial analyst, you are tasked with evaluating a capital budgeting project. You were instructed ‘tose the IRR method and you need to determine an appropriate hurdle rate. The risk-free rate is 4 percent and the expected market rate of return is 11 percent. Your company has a beta of 0.75 and the project that you are evaluating is considered to have risk equal to the average project that the company hhas accepted in the past. According to CAPM, the appropriate hurdle rate would be____%. Aa 3.9.25 C15 b.wt £0.75 37. Asa financial analyst, you are tasked with evaluating a capital budgeting project. You were instructed to.use the IRR method and you need to determine an appropriate hurdle rate. The risk-free rate is 4 percent and the expected market rate of return is 11 percent. Your company has a beta of 0.67 and the project that you are evaluating is considered to have risk equal to the average project that the company has accepted in the past. According to CAPM, the appropriate hurdle rate would be____%. A 8.8.69 cas 0.14 £0.75 38. Asa financial analyst, you are tasked with evaluating a capital budgeting project. You were instructed to use the IRR method and you need to determine an appropriate hurdle rate. The risk-free rate is S percent and the expected market rate of return is 10 percent. Your company has @ beta of 0.67 and the project that you are evaluating is considered to have risk equal to the average project that the company hhas accepted in the past. According to CAPM, the appropriate hurdle rate would be__%. A.10 85 835 0.2835, £067 39, The riskree rate is 4 percent. The expected market rate of return is 11 percent. If you expect CAT with a beta of 1.0 to offera rate of return of 10 percent, you should ‘A buy stock X because iti overpriced. B. sell short stock x because it is overpriced. C. sell stock short x because it is underpriced. D. buy stock X because it is underpriced. E. none of the above, asthe stockis fairly priced. 10% < 4% + 1.0(11% - 4%) = 11.0%; therefore, stock is overpriced and should be shorted. 40, The riskfree rate is 4 percent. The expected market rate of return is 11 percent. If you expect CAT with a beta of 1.0 to offer a rate of return of 11 percent, you should A. buy stock X because it is overpriced. 8. sell short stock X because itis overpriced, . sell stock short X because it is underpriced. . buy stock X because it is underpriced, none of the above, as the stock is fairly priced.AL, The risk‘ree rate is 4 percent. The expected market rate of return is 11 percent. If you expect CAT with a beta of 1.0 to offer a rate of return of 13 percent, you should | buy stock X because its overpriced, 8, sell short stock X because itis overpriced. C. sell stock short X because itis underpriced. D, buy stock X because itis underpriced. E.none of the above, as the stocks fairly priced. 42. You invest 55% of your money in security A with a beta of 1.4 and the rest of your money in security Bwith a beta of 0.9. The beta of the resulting portfolio is A 1.486 8.1157 0.968 0, 1.082 E1175 43. Given the following two stocks A and B Security Expected rate of return Beta A O12 12 B od 18 Ifthe expected market rate of return is 0.09 and the risk-free rate is 0.05, which security would be considered the better buy and why? ‘A. Abecause it offers an expected excess return of 1.2%. B. B because it offers an expected excess return of 1.8%. G.Abecause it offers an expected excess return of 2.2%. D. B because it offers an expected return of 14%. , Because it has a higher beta 44. Capital Asset Pricing Theory asserts that portfolio returns are best explained by: ‘A. economic factors. B. specific risk, G. systematic risk. . diversification, E.none of the above. 45, According to the CAPM, the risk premium an investor expects to receive on any stock or portfolio A directly with alpha, 8. inversely with alpha. C. directly with beta. D. inversely with beta. E. in proportion to its standard deviation. ‘46, What isthe expected return ofa zero-beta security? A, The market rate of return, B. Zero rate of return C. Anegative rate of return. D, The risk-free rate. E. None of the above.47, Standard deviation and beta both measure risk, but they are different in that ‘Abeta measures both systematic and unsystematic risk. B. beta measures only systematic risk while standard deviation is a measure of total isk C. beta measures only unsystematic risk while standard deviation is a measure of total risk. D. beta measures both systematic and unsystematic risk while standard deviation measures only systematic risk. E. beta measures total isk while standard deviation measures only nonsystematic risk. 48. The expected return-beta relationship {A Is the most familiar expression of the CAPM to practitioners. 8. refers to the way in which the covariance between the returns on a stock and returns on the market ‘measures the contribution of the stock to the variance of the market portfolio, which is beta CC. assumes that investors hold well-diversified portfolios. Dall of the above are true, E. none of the above are true. 49, The security market line (SML) |A. can be portrayed graphically as the expected return-beta relationship. 8. can be portrayed graphically as the expected return-standard deviation of market returns relationship. . provides a benchmark for evaluation of investment performance. DAandc. E. Band, 50. Research by Jeremy Stein of MIT resolves the dispute over whether beta is a sufficient pricing factor by suggesting that managers should use beta to estimate A long-term returns but not short-term returns, 8. short-term returns but not long-term returns. . both long- and short-term return. . book-to-market ratios. E, None of the above was suggested by Stein. S51. Studies of liquidity spreads in security markets have shown that A liquid stocks earn higher returns than illiquid stocks. B illiquid stocks earn higher returns than liquid stocks. . both liquid and iliquid stocks earn the same returns. ©. illiquid stocks are good investments for frequent, short-term traders. E. None of the above are true. 52. An underpriced security wil plot ‘A.on the Security Market Line. B. below the Security Market Line G. above the Security Market Line. D. either above or below the Security Market Line depending on its covariance with the market. E. either above or below the Security Market Line depending on its standard deviation. 53. An overpriced security wil plot ‘Aon the Security Market Line. B, below the Security Market Line. . above the Security Market Line. D. elther above or below the Security Market Line depending on its covariance with the market. E. either above or below the Security Market Line depending on its standard deviation,'54, The risk premium on the market portfolio will be proportional to ‘A the average degree of risk aversion of the investor population 8. the risk of the market portfolio as measured by its variance. . the risk of the market portfolio as measured by its beta D, both A and Bare true, E. both Aand Care true. $55. In equilibrium, the marginal price of risk for a risky security must be A. equal to the marginal price of risk for the market portfolio. 8. greater than the marginal price of risk for the market portfolio. less than the marginal price of risk for the market portfolio. D. adjusted by its degree of nonsystematic risk. E. none of the above are true. 56. The capital asset pricing model assumes all investors are price takers. 8. all investors have the same holding period . investors pay taxes on capital gains. D, both A and B are true, EA, Band C are all true '57. The capital asset pricing model assumes A.all investors are price takers. 8. all nvestors have the same holding period. investors have homogeneous expectations. D. both A and B are true. E.A,Band Care all true. ‘58. The capital asset pricing model assumes A.allinvestors are price takers. 8. all investors have the same holding period. C. investors have homogeneous expectations, D. both A and B are true. E.A,Band Care all true. '59, The capital asset pricing model assumes {all investors are fully informed, 8. all investors are rational. C. all investors are mean-variance optimizers. D. taxes are an important consideration. E.A, Band Care all true. 60, Ifinvestors do not know their investment horizons for certain | the CAPM is no longer valid. 8. the CAPM underlying assumptions are not violated. the implications of the CAPM are not violated as long as investors liquidity needs are not priced. ©. the implications of the CAPM are no longer useful. none of the above are true.