CAPM Final Quiz

1. A risk-free asset when combined with optimal risky assets leads to?

2. What is the risky portfolio for the Capital Market Line?

3. The Capital Asset Pricing Model states that to calculate the expect return of an asset you need risk premium of the equity market and?

4. Who published the paper on liquidity preference as behaviour towards risk?

5. The risk-free asset has zero variance

6. Beta is the standardised measure of covariance with the benchmark index

7. In CAPM an investor is not rewarded for diversifiable risk ? 

8. Interest Rate Risk is type of which risk ? 

9. Which risk adjusted ratio measures excess returns over risk free rate divided by beta?

10. A security has a beta of 1.1 and market risk premium of 4%. If risk free rate is 3%, what is the expected return of the portfolio?  

11. A security has a beta of 1.1 and market risk premium of 4%. If risk free rate is 3%, what is the excess expected return of the portfolio?  

12. In a market equilibrium, all assets lie on the security market line. 

13. Consider two funds A and B in country. Fund A gives a return of 11% with a standard deviation of 18%, Fund B gives a return of 22% with a standard deviation of 15%. If risk free rate is 4%, ignoring other factors which of the funds is better using Sharpe Ratio?

14.  A stock gave a return of 12%. Its beta with the market index is 1.2 and the market premium is 8%. Consider risk free rate as 4%. What is the alpha for the stock and is it under or overvalued?

15. The market portfolio is completely diversified portfolio and has no unsystematic or unique risk. 

16. If beta = 0.8, and excess return is 8%, what is the Treynor Ratio ?

17. According to CAPM, diversifiable risk must be rewarded? 

18.  Investors make decisions on which attribute of the portfolio based on this CAPM series ?  

19. Dr Harry Markowitz Father of Modern Portfolio Theory focussed on which of the following? Multiple Choices if applicable 

20. You invest CAD $222 in a security. After 2 years, the value of the investment doubles. What is the annualised return (holding period yield) of the portfolio?  Hint use the concept of holding period.

21. Refer to the figure and calculate the expected return of the portfolio looking at all economic scenarios.

22. The expected return of a portfolio is 11%. If risk free rate is 3%, and market premium is 6%, what is the beta of the stock ?

23. Total Risk = Diversifiable Risk plus ____ ? 

24. Any variable whose price changes over time in an uncertain manner is known as __ ?

25. An analyst who does not look at technical analysis of stock market is relying on which form of Efficient Market Hypothesis?

26. Compared to active mutual funds, index funds will have which type of expenses?

27. Alpha is the difference between fair and ______ ? 

28. Normal distribution has an excess kurtosis of _____ ? 

29.  Which asset developed Portfolio Theory into Capital Market Theory.  

30.  The CAPM implies that investors hold diversified portfolios that lowers risk and increases prices. 

31. The market portfolio has a beta of ___?