投资学第7版Test Bank答案13.docx
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投资学第7版Test Bank答案13.docx
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投资学第7版TestBank答案13
MultipleChoiceQuestions
1.Theexpectedreturn/betarelationshipisused___________.
A)byregulatorycommissionsindeterminingthecostsofcapitalforregulatedfirms
B)incourtrulingstodeterminediscountratestoevaluateclaimsoflostfutureincomes
C)toadviseclientsastothecompositionoftheirportfolios
D)alloftheabove
E)noneoftheabove
Answer:
DDifficulty:
Easy
Rationale:
Therisk/returnrelationshipisappropriateforalloftheusescitedabove.
2.__________arguedinhisfamouscritiquethattestsoftheexpectedreturn/betarelationshipareinvalidandthatitisdoubtfulthattheCAPMcaneverbetested.
A)Kim
B)Markowitz
C)Modigliani
D)Roll
E)noneoftheabove
Answer:
DDifficulty:
Easy
Rationale:
TheseargumentsweremadebyRichardRollinhisfamouscritiqueoftheCAPM,resultingtheInstitutionalInvestorarticle,"IsBetaDead?
"
3.FamaandMacBeth(1973)foundthattherelationshipbetweenaverageexcessreturnsandbetaswas________.
A)linear
B)nonexistent
C)asexpected,basedonearlierstudies
D)FamaandMacBethdidnotexaminetherelationshipbetweenexcessreturnsandbeta
E)AandC
Answer:
EDifficulty:
Moderate
Rationale:
TheFamaandMacBethstudyvalidatedearlierstudiesoftheexcessreturns/betarelationship.
4.Intheempiricalstudyofamulti-factormodelbyChen,Roll,andRoss,afactorthatappearedtohavesignificantexplanatorypowerinexplainingsecurityreturnswas________.
A)thechangeintheexpectedrateofinflation
B)theriskpremiumonbonds
C)theunexpectedchangeintherateofinflation
D)industrialproduction
E)B,CandD
Answer:
EDifficulty:
Difficult
Rationale:
Ofthevariablestested,Chen,Roll,andRossfoundthatB,C,andDweresignificantpredictorsofsecurityreturns.
5.IntheresultsoftheearliestestimationsofthesecuritymarketlinebyLintner(1965)andbyMillerandScholes(1972),itwasfoundthattheaveragedifferencebetweenastock'sreturnandtherisk-freeratewas________toitsnonsystematicrisk.
A)positivelyrelated
B)negativelyrelated
C)unrelated
D)relatedinanonlinearfashion
E)noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
Theseresultsweresurprising,asitwasexpectedthatsystematic,notnonsystematic,riskwouldbepositivelyrelatedtostockreturns.
6.IntheresultsoftheearliestestimationsofthesecuritymarketlinebyLintner(1965)andScholes(1972),itwasfoundthattheaveragedifferencebetweenastock'sreturnandtherisk-freeratewas________toitsbeta.
A)positivelyrelated
B)negativelyrelated
C)unrelated
D)inverselyrelated
E)notproportional
Answer:
ADifficulty:
Moderate
Rationale:
TheseresultsareconsistentwiththeCAPM.
7.Inthe1972empiricalstudybyBlack,Jensen,andScholes,theyfoundthattheestimatedslopeofthesecuritymarketlinewas_______whattheCAPMwouldpredict.
A)higherthan
B)equalto
C)lessthan
D)twiceasmuchas
E)moreinformationisrequiredtoanswerthisquestion
Answer:
CDifficulty:
Moderate
Rationale:
ThesestudiesfoundthattheSMLwas"tooflat",comparedtoCAPMpredictionsbyastatisticallysignificantmargin.
8.Ifaprofessionallymanagedportfolioconsistentlyoutperformsthemarketproxyonarisk-adjustedbasisandthemarketisefficient,itshouldbeconcludedthat_________.
A)theCAPMisinvalid
B)theproxyisinadequate
C)eithertheCAPMisinvalidortheproxyisinadequate
D)theCAPMisvalidandtheproxyisadequate
E)noneoftheabove
Answer:
CDifficulty:
Moderate
Rationale:
Cistrue;however,unfortunately,onecannotconcludewhichone(orboth)istheproblem.
9.GiventheresultsoftheearlystudiesbyLintner(1965)andMillerandScholes(1972),onewouldconcludethat
A)highbetastockstendtooutperformthepredictionsoftheCAPM.
B)lowbetastockstendtooutperformthepredictionsoftheCAPM.
C)thereisnorelationshipbetweenbetaandthepredictionsoftheCAPM.
D)AandB.
E)noneoftheabove.
Answer:
BDifficulty:
Moderate
Rationale:
Theresultsofthesestudiesareexactlytheoppositeofwhatonewouldexpect.
10.Ifamarketproxyportfolioconsistentlybeatsallprofessionallymanagedportfoliosonarisk-adjustedbasis,itmaybeconcludedthat
A)theCAPMisvalid.
B)themarketproxyismean/varianceefficient.
C)theCAPMisinvalid.
D)AandB.
E)BandC.
Answer:
DDifficulty:
Moderate
Rationale:
Ifsuchresultswereobtainedconsistently,onecouldbeassuredthatthemodelisvalidandthatthemarketproxyismean/varianceefficient.
11.Indevelopingtheirtestofamultifactormodel,Chen,Roll,andRosshypothesizedthat__________forsystematicfactors.
A)themonthlygrowthrateinindustrialproductionmightbeaproxy
B)unexpectedinflationmightbeaproxy
C)expectedinflationmightbeaproxy
D)AandB
E)A,B,andC
Answer:
EDifficulty:
Moderate
Rationale:
Intheirmodel,Chen,Roll,andRosshypothesizedthatA,B,andCmightbeproxiesforsystematicrisk.However,oftheabovefactors,onlyAandBappearedtohavesignificantexplanatorypower.
12.Black,Jensen,andScholesexaminedthevalidityofthesimpleversionoftheCAPMandthezerobetaversionoftheCAPM.Theirempiricalresultswere
A)fullyconsistentwiththesimpleversionoftheCAPM.
B)fullyconsistentwiththezerobetaversionoftheCAPM.
C)notfullyconsistentwitheitherthesimpleversionoftheCAPMorthezerobetaversionoftheCAPM,butweremoreconsistentwiththesimpleversionoftheCAPM.
D)notfullyconsistentwitheitherthesimpleversionoftheCAPMorthezerobetaversionoftheCAPM,butweremoreconsistentwiththezerobetaversionoftheCAPM.
E)noneoftheabove.
Answer:
DDifficulty:
Moderate
Rationale:
Disthemostaccuratestatementregardingthesefindings.
13.KandelandStambaugh(1995)expandedRoll'scritiqueoftheCAPMbyarguingthattestsrejectingapositiverelationshipbetweenaveragereturnandbetaaredemonstrating
A)theinefficiencyofthemarketproxyusedinthetests.
B)thattherelationshipbetweenaveragereturnandbetaisnotlinear.
C)thattherelationshipbetweenaveragereturnandbetaisnegative.
D)theneedforabetterwayofexplainingsecurityreturns.
E)noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
Theseresultsaretypicaloftheresultsofsimilarstudies.
14.Inthe1972empiricalstudybyBlack,Jensen,andScholes,theyfoundthattherisk-adjustedreturnsofhighbetaportfolioswere_____________therisk-adjustedreturnsoflowbetaportfolios.
A)greaterthan
B)equalto
C)lessthan
D)unrelatedto
E)moreinformationisnecessarytoanswerthisquestion
Answer:
CDifficulty:
Moderate
Rationale:
TheseresultsareinconsistentwithwhatwouldbepredictedwiththeCAPM.
15.TheresearchbyFamaandFrenchsuggestingthatCAPMisinvalidhasgeneratedwhichofthefollowingresponses?
A)Bettereconometricsshouldbeusedinthetestprocedure.
B)Estimatesofassetbetasneedtobeimproved.
C)TheoreticalsourcesandimplicationsofresearchthatcontradictsCAPMneedstobereconsidered.
D)Thesingle-indexmodelneedstoaccountfornon-tradedassetsandthecyclicalbehaviorofassetbetas.
E)Alloftheabove
Answer:
EDifficulty:
Moderate
Rationale:
AllfourresponseshavebeengivenintheliteraturerespondingtotheFama-Frenchcritique.
16.Considertheregressionequation:
rit-rft=ai+bi(rmt-rft)+eit
where:
rit=returnonstockiinmontht
rft=themonthlyrisk-freerateofreturninmontht
rmt=thereturnonthemarketportfolioproxyinmontht
Thisregressionequationisusedtoestimate
A)thesecuritycharacteristicline.
B)thesecuritymarketline.
C)thecapitalmarketline.
D)alloftheabove.
E)noneoftheabove.
Answer:
ADifficulty:
Moderate
Rationale:
Thesecuritycharacteristiclineisagraphicaldepictionoftheexcessreturnsonthesecurityasafunctionoftheexcessreturnsonthemarket.
17.Considertheregressionequation:
ri-rf=g0+g1b1+g2s2(ei)+eit
where:
ri-rf=theaveragedifferencebetweenthemonthlyreturnonstockiandthemonthlyrisk-freerate
bi=thebetaofstocki
s2(ei)=ameasureofthenonsystematicvarianceofthestocki
IfyouestimatedthisregressionequationandtheCAPMwasvalid,youwouldexpecttheestimatedcoefficientg0tobe
A)0.
B)1.
C)equaltotherisk-freerateofreturn.
D)equaltotheaveragedifferencebetweenthemonthlyreturnonthemarketportfolioandthemonthlyrisk-freerate.
E)noneoftheabove.
Answer:
ADifficulty:
Moderate
Rationale:
Inthismodel,thecoefficient,g0representstheexcessreturnofthesecurity,whichwouldbezeroiftheCAPMheld.
18.Considertheregressionequation:
ri-rf=g0+g1bi+g2s2(ei)+eit
where:
ri-rt=theaveragedifferencebetweenthemonthlyreturnonstockiandthemonthlyrisk-freerate
bi=thebetaofstocki
s2(ei)=ameasureofthenonsystematicvarianceofthestocki
IfyouestimatedthisregressionequationandtheCAPMwasvalid,youwouldexpecttheestimatedcoefficient,g1tobe
A)0
B)1
C)equaltotherisk-freerateofreturn.
D)equaltotheaveragedifferencebetweenthemonthlyreturnonthemarketportfolioandthemonthlyrisk-freerate.
E)equaltotheaveragemonthlyreturnonthemarketportfolio.
Answer:
DDifficulty:
Moderate
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