1、Chapter 10Arbitrage Pricing Theory and Multifactor Models of Risk and Return Multiple Choice Questions1._ a relationship between expected return and risk.A.APT stipulatesB.CAPM stipulatesC.Both CAPM and APT stipulateD.Neither CAPM nor APT stipulateE.No pricing model has found2.Consider the multifact
2、or APT with two factors. Stock A has an expected return of 17.6%, a beta of 1.45 on factor 1 and a beta of .86 on factor 2. The risk premium on the factor 1 portfolio is 3.2%. The risk-free rate of return is 5%. What is the risk-premium on factor 2 if no arbitrage opportunities exit?A.9.26%B.3%C.4%D
3、7.75%E.9.75%3.In a multi-factor APT model, the coefficients on the macro factors are often called _.A.systemic riskB.factor sensitivitiesC.idiosyncratic riskD.factor betasE.both factor sensitivities and factor betas4.In a multi-factor APT model, the coefficients on the macro factors are often calle
4、d _.A.systemic riskB.firm-specific riskC.idiosyncratic riskD.factor betasE.unique risk5.In a multi-factor APT model, the coefficients on the macro factors are often called _.A.systemic riskB.firm-specific riskC.idiosyncratic riskD.factor loadingsE.unique risk6.Which pricing model provides no guidanc
5、e concerning the determination of the risk premium on factor portfolios?A.The CAPMB.The multifactor APTC.Both the CAPM and the multifactor APTD.Neither the CAPM nor the multifactor APTE.No pricing model currently exists that provides guidance concerning the determination of the risk premium on any p
6、ortfolio7.An arbitrage opportunity exists if an investor can construct a _ investment portfolio that will yield a sure profit.A.small positiveB.small negativeC.zeroD.large positiveE.large negative8.The APT was developed in 1976 by _.A.LintnerB.Modigliani and MillerC.RossD.SharpeE.Fama9.A _ portfolio
7、 is a well-diversified portfolio constructed to have a beta of 1 on one of the factors and a beta of 0 on any other factor.A.factorB.marketC.indexD.factor and marketE.factor, market, and index10.The exploitation of security mispricing in such a way that risk-free economic profits may be earned is ca
8、lled _.A.arbitrageB.capital asset pricingC.factoringD.fundamental analysisE.technical analysis11.In developing the APT, Ross assumed that uncertainty in asset returns was a result ofA.a common macroeconomic factor.B.firm-specific factors.C.pricing error.D.neither common macroeconomic factors nor fir
9、m-specific factors.E.both common macroeconomic factors and firm-specific factors.12.The _ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _ implies that this relationship holds for all but perhaps a small number of securities.A.APT; CAPMB.APT; O
10、PMC.CAPM; APTD.CAPM; OPME.APT and OPM; CAPM13.Consider a single factor APT. Portfolio A has a beta of 1.0 and an expected return of 16%. Portfolio B has a beta of 0.8 and an expected return of 12%. The risk-free rate of return is 6%. If you wanted to take advantage of an arbitrage opportunity, you s
11、hould take a short position in portfolio _ and a long position in portfolio _.A.A; AB.A; BC.B; AD.B; BE.A; the riskless asset14.Consider the single factor APT. Portfolio A has a beta of 0.2 and an expected return of 13%. Portfolio B has a beta of 0.4 and an expected return of 15%. The risk-free rate
12、 of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio _ and a long position in portfolio _.A.A; AB.A; BC.B; AD.B; BE.No arbitrage opportunity exists.15.Consider the one-factor APT. The variance of returns on the factor portfolio
13、 is 6%. The beta of a well-diversified portfolio on the factor is 1.1. The variance of returns on the well-diversified portfolio is approximately _.A.3.6%B.6.0%C.7.3%D.10.1%E.8.6%16.Consider the one-factor APT. The standard deviation of returns on a well-diversified portfolio is 18%. The standard de
14、viation on the factor portfolio is 16%. The beta of the well-diversified portfolio is approximately _.A.0.80B.1.13C.1.25D.1.56E.0.9317.Consider the single-factor APT. Stocks A and B have expected returns of 15% and 18%, respectively. The risk-free rate of return is 6%. Stock B has a beta of 1.0. If
15、arbitrage opportunities are ruled out, stock A has a beta of _.A.0.67B.1.00C.1.30D.1.69E.0.7518.Consider the multifactor APT with two factors. Stock A has an expected return of 16.4%, a beta of 1.4 on factor 1 and a beta of .8 on factor 2. The risk premium on the factor 1 portfolio is 3%. The risk-f
16、ree rate of return is 6%. What is the risk-premium on factor 2 if no arbitrage opportunities exit?A.2%B.3%C.4%D.7.75%E.6.89%19.Consider the multifactor model APT with two factors. Portfolio A has a beta of 0.75 on factor 1 and a beta of 1.25 on factor 2. The risk premiums on the factor 1 and factor
17、2 portfolios are 1% and 7%, respectively. The risk-free rate of return is 7%. The expected return on portfolio A is _ if no arbitrage opportunities exist.A.13.5%B.15.0%C.16.5%D.23.0%E.18.7%20.Consider the multifactor APT with two factors. The risk premiums on the factor 1 and factor 2 portfolios are
18、 5% and 6%, respectively. Stock A has a beta of 1.2 on factor 1, and a beta of 0.7 on factor 2. The expected return on stock A is 17%. If no arbitrage opportunities exist, the risk-free rate of return is _.A.6.0%B.6.5%C.6.8%D.7.4%E.7.7%21.Consider a one-factor economy. Portfolio A has a beta of 1.0
19、on the factor and portfolio B has a beta of 2.0 on the factor. The expected returns on portfolios A and B are 11% and 17%, respectively. Assume that the risk-free rate is 6% and that arbitrage opportunities exist. Suppose you invested $100,000 in the risk-free asset, $100,000 in portfolio B, and sol
20、d short $200,000 of portfolio A. Your expected profit from this strategy would be _.A.$1,000B.$0C.$1,000D.$2,000E.$1,60022.Consider the one-factor APT. Assume that two portfolios, A and B, are well diversified. The betas of portfolios A and B are 1.0 and 1.5, respectively. The expected returns on po
21、rtfolios A and B are 19% and 24%, respectively. Assuming no arbitrage opportunities exist, the risk-free rate of return must be _.A.4.0%B.9.0%C.14.0%D.16.5%E.8.2%23.Consider the multifactor APT. The risk premiums on the factor 1 and factor 2 portfolios are 5% and 3%, respectively. The risk-free rate
22、 of return is 10%. Stock A has an expected return of 19% and a beta on factor 1 of 0.8. Stock A has a beta on factor 2 of _.A.1.33B.1.50C.1.67D.2.00E.1.7324.Consider the single factor APT. Portfolios A and B have expected returns of 14% and 18%, respectively. The risk-free rate of return is 7%. Port
23、folio A has a beta of 0.7. If arbitrage opportunities are ruled out, portfolio B must have a beta of _.A.0.45B.1.00C.1.10D.1.22E.1.33There are three stocks, A, B, and C. You can either invest in these stocks or short sell them. There are three possible states of nature for economic growth in the upc
24、oming year; economic growth may be strong, moderate, or weak. The returns for the upcoming year on stocks A, B, and C for each of these states of nature are given below:25.If you invested in an equally weighted portfolio of stocks A and B, your portfolio return would be _ if economic growth were mod
25、erate.A.3.0%B.14.5%C.15.5%D.16.0%E.17.0%26.If you invested in an equally weighted portfolio of stocks A and C, your portfolio return would be _ if economic growth was strong.A.17.0%B.22.5%C.30.0%D.30.5%E.25.6%27.If you invested in an equally weighted portfolio of stocks B and C, your portfolio retur
26、n would be _ if economic growth was weak.A.2.5%B.0.5%C.3.0%D.11.0%E.9.0%28.If you wanted to take advantage of a risk-free arbitrage opportunity, you should take a short position in _ and a long position in an equally weighted portfolio of _.A.A; B and CB.B; A and CC.C; A and BD.A and B; CE.No arbitr
27、age opportunity exists.Consider the multifactor APT. There are two independent economic factors, F1and F2. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios:29.Assuming no arbitrage opportunities exist, the risk premium on the factor F1p
28、ortfolio should be _.A.3%B.4%C.5%D.6%E.2%30.Assuming no arbitrage opportunities exist, the risk premium on the factor F2 portfolio should be _.A.3%B.4%C.5%D.6%E.2%31.A zero-investment portfolio with a positive expected return arises when _.A.an investor has downside risk onlyB.the law of prices is n
29、ot violatedC.the opportunity set is not tangent to the capital allocation lineD.a risk-free arbitrage opportunity existsE.a risk-free arbitrage opportunity does not exist32.An investor will take as large a position as possible when an equilibrium price relationship is violated. This is an example of
30、 _.A.a dominance argumentB.the mean-variance efficiency frontierC.a risk-free arbitrageD.the capital asset pricing modelE.the SML33.The APT differs from the CAPM because the APT _.A.places more emphasis on market riskB.minimizes the importance of diversificationC.recognizes multiple unsystematic ris
31、k factorsD.recognizes multiple systematic risk factorsE.places more emphasis on systematic risk34.The feature of the APT that offers the greatest potential advantage over the CAPM is the _.A.use of several factors instead of a single market index to explain the risk-return relationshipB.identificati
32、on of anticipated changes in production, inflation, and term structure as key factors in explaining the risk-return relationshipC.superior measurement of the risk-free rate of return over historical time periodsD.variability of coefficients of sensitivity to the APT factors for a given asset over ti
33、meE.superior measurement of the risk-free rate of return over historical time periods and variability of coefficients of sensitivity to the APT factors for a given asset over time35.In terms of the risk/return relationship in the APTA.only factor risk commands a risk premium in market equilibrium.B.
34、only systematic risk is related to expected returns.C.only nonsystematic risk is related to expected returns.D.only factor risk commands a risk premium in market equilibrium and only systematic risk is related to expected returns.E.only factor risk commands a risk premium in market equilibrium and o
35、nly nonsystematic risk is related to expected returns.36.The following factors might affect stock returns:A.the business cycle.B.interest rate fluctuations.C.inflation rates.D.the business cycle, interest rate fluctuations, and inflation rates.E.the relationship between past FRED spreads.37.Advantag
36、e(s) of the APT is(are)A.that the model provides specific guidance concerning the determination of the risk premiums on the factor portfolios.B.that the model does not require a specific benchmark market portfolio.C.that risk need not be considered.D.that the model provides specific guidance concern
37、ing the determination of the risk premiums on the factor portfolios and that the model does not require a specific benchmark market portfolio.E.that the model does not require a specific benchmark market portfolio and that risk need not be considered.38.Portfolio A has expected return of 10% and sta
38、ndard deviation of 19%. Portfolio B has expected return of 12% and standard deviation of 17%. Rational investors willA.borrow at the risk free rate and buy A.B.sell A short and buy B.C.sell B short and buy A.D.borrow at the risk free rate and buy B.E.lend at the risk free rate and buy B.39.An import
39、ant difference between CAPM and APT isA.CAPM depends on risk-return dominance; APT depends on a no arbitrage condition.B.CAPM assumes many small changes are required to bring the market back to equilibrium; APT assumes a few large changes are required to bring the market back to equilibrium.C.implic
40、ations for prices derived from CAPM arguments are stronger than prices derived from APT arguments.D.CAPM depends on risk-return dominance; APT depends on a no arbitrage condition, CAPM assumes many small changes are required to bring the market back to equilibrium; APT assumes a few large changes ar
41、e required to bring the market back to equilibrium, implications for prices derived from CAPM arguments are stronger than prices derived from APT arguments.E.CAPM depends on risk-return dominance; APT depends on a no arbitrage condition and assumes many small changes are required to bring the market
42、 back to equilibrium.40.A professional who searches for mispriced securities in specific areas such as merger-target stocks, rather than one who seeks strict (risk-free) arbitrage opportunities is engaged inA.pure arbitrage.B.risk arbitrage.C.option arbitrage.D.equilibrium arbitrage.E.covered intere
43、st arbitrage.41.In the context of the Arbitrage Pricing Theory, as a well-diversified portfolio becomes larger its nonsystematic risk approachesA.one.B.infinity.C.zero.D.negative one.E.None of these is correct.42.A well-diversified portfolio is defined asA.one that is diversified over a large enough
44、 number of securities that the nonsystematic variance is essentially zero.B.one that contains securities from at least three different industry sectors.C.a portfolio whose factor beta equals 1.0.D.a portfolio that is equally weighted.E.a portfolio that is equally weighted and contains securities fro
45、m at least three different industry sectors.43.The APT requires a benchmark portfolioA.that is equal to the true market portfolio.B.that contains all securities in proportion to their market values.C.that need not be well-diversified.D.that is well-diversified and lies on the SML.E.that is unobservable.44.Imposing the no-arbitrage condition on a single-factor security market implies which of the following statements?I) the expected return-beta relationship is maintained for all but a small number of well
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