Question

QUESTION 1

1. Under the CAPM, investors require a rate of return that is proportional to the volatility of each asset.  

   True

   False

QUESTION 2

1. The simple average of all equity betas in a market must equal exactly 1, by construction.

   True

   False

QUESTION 3

1. All assets and portfolios that plot on the Capital Market Line have returns that are perfectly positively correlated with the market portfolio.

   True

   False

QUESTION 4

1. A firm that operates in rural areas, and is more exposed to bush fire risk, will have a higher beta than an otherwise identical firm that operates in a major city.

   True

   False

QUESTION 5

1. Under the CAPM, no asset or portfolio has a higher Sharpe ratio than the market portfolio.

   True

   False

QUESTION 6

1. Under the CAPM, it is possible for an asset to have a negative beta, but a positive expected return.

   True

   False

QUESTION 7

1. Under the CAPM, it is possible for the market portfolio to include a short position in one or more assets.

   True

   False

2 points   

QUESTION 8

1. Under the CAPM, risk-averse investors will try to avoid volatile stocks and invest only in stocks with low volatility.

   True

   False

QUESTION 9

1. Under the CAPM, investors with high wealth and low risk aversion have more impact on stock prices than do investors with low wealth and high risk aversion.

   True

   False

QUESTION 10

1. Under the CAPM, the only way an individual stock could plot on the CML is if it happens to have exactly the same expected return and standard deviation as the market portfolio

True

False

Answer 1

A) False the investor wants risk free return plus excess of market return over risk free retun in proportion of the volatility

B)False it may or may or may not be 1

C)False it is the best possible expected level of return for its level of risk

D)False Beta is volatility of the stock in relation to the market , it does not depend on the location of the company.

E) False a stock with higher expected return may haive higher sharpe ratio

F)True

G)True

H) True

I)False the stock price is determined by supply and demand not due to wealth or risk aversion of the investor.

J)