Questions from General Investment

Q: Here are data on two companies. The T-bill rate

Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6% What should be the expected rate of return for each company, according to the capital asset pricing model (CAPM)...

Q: Characterize each company in the previous problem as underpriced, overpriced,

Characterize each company in the previous problem as underpriced, overpriced, or properly priced.

Q: What is the expected rate of return for a stock that has

What is the expected rate of return for a stock that has a beta of 1 if the expected return on the market is 15%? a. 15%. b. More than 15%. c. Cannot be determined without the risk-free rate.

Q: According to the theory of arbitrage: a. High-

According to the theory of arbitrage: a. High-beta stocks are consistently overpriced. b. Low-beta stocks are consistently overpriced. c. Positive-alpha investment opportunities will quickly disapp...

Q: Kidskin, Inc., stock has a beta of 1.2

Kidskin, Inc., stock has a beta of 1.2 and Quinn, Inc., stock has a beta of 0.6. Which of the following statements is most accurate? a. The equilibrium expected rate of return is higher for Kaskin tha...

Q: In a single-factor market, the SML relationship of both

In a single-factor market, the SML relationship of both the CAPM and the APT states that the risk premium on any security is proportional to beta, or, equivalently, that the security’...

Q: What must be the beta of a portfolio with E(rP

What must be the beta of a portfolio with E(rP) = 20%, if rf = 5% and E(rM) = 15%?

Q: If markets are efficient, what should be the correlation coefficient between

If markets are efficient, what should be the correlation coefficient between stock returns for two no overlapping time periods?

Q: Which of the following sources of market inefficiency would be most easily

Which of the following sources of market inefficiency would be most easily exploited? a. A stock price drops suddenly due to a large block sale by an institution. b. A stock is overpriced because tr...

Q: Which of the following would most appear to contradict the proposition that

Which of the following would most appear to contradict the proposition that the stock market is weakly efficient? Explain. a. Over 25% of mutual funds outperform the market on average. b. Insiders e...