According to Ang, here is a summary of the successes of CAPM ("ideas it gets right"):

1. Don't hold an individual asset, hold the factor

2. Each investor has his own optimal exposure of factor risk
3. The average investor holds the market
4. The factor risk premium has an economic story
5. Risk is factor exposure
6. Assets paying off in bad times have low risk premiums

Here is a summary of the failures of CAPM according to Ang. Please note these are CAPM
assumptions that he says are NOT true in practice; or put another way, these are assumptions
which are demonstrably violated.
1. Investors have only financial wealth.
2. Investors have mean-variance utility
3. Single-period investment horizon
4. Investors have homogeneous expectations (I personally believe this is the most
egregious CAPM assumption, fwiw)
5. No taxes or transactions costs
6. Individual investors are price takers
7. Information is costless and available to all investors (as an investor, I wholeheartedly
concur here: some information is abundant, but processing it is hardly "free" nor is the
information evenly distributed).

It it thematic to the chapter that factors compensate investors for exposure to the effects of bad
times and, per truce choice B, (m) is an index of bad times. A higher value of cov[r(i),m] refers to
an asset that performs better in bad times per the factor; e.g., high inflation, low economic
growth. Such a high beta asset (in this context) is valuable and attracts a higher price/lower risk
premium.
Ang: "It turns out that we can write the risk premium of an asset in a relation very similar to the
SML of the CAPM in equation (6.2):

where β(i,m) = cov[r(i),m]/var(m) is the beta of the asset with respect to the SDF. Equation (6.8)
captures the “bad times” intuition that we had earlier from the CAPM. Remember that m is an
index of bad times. The higher the payoff of the asset is in bad times (so the higher cov(ri, m)
and the higher βi,m), the lower the expected return of that asset. The higher beta in equation
(6.8) is multiplied by the price of “bad times” risk, λ(m) = −var(m)/E(m), which is the inverse of
factor risk, which is why there is a negative sign. Equation (6.8) states directly the intuition of
Lesson 6 from the CAPM: higher covariances with bad times lead to lower risk premiums.
Assets that pay off in bad times are valuable to hold, so prices for these assets are high and
expected returns are low."

Litterman (Rosengarten and Zangari): "The Sharpe and information ratios incorporate the
following strengths:
 They can be used to measure relative performance vis à vis the competition by
identifying managers who generate superior risk-adjusted excess returns vis à vis a
relevant peer group. RMUs and investors might specify some minimum rate of
acceptable risk-adjusted return when evaluating manager performance.
They test whether the manager has generated sufficient excess returns to compensate
for the risk assumed.
The statistics can be applied both at the portfolio level as well as for individual industrial
sectors and countries. For example, they can help determine which managers have
excess risk-adjusted performance at the sector or country level.
The Sharpe and information ratios incorporate the following weaknesses:
They may require data that may not be available for either the manager or many of his
competitors. Often an insufficient history is present for one to be conclusive about the
attractiveness of the risk-adjusted returns.
When one calculates the statistic based on achieved risk instead of potential risk, the
statistic’s relevance depends, to some degree, on whether the environment is friendly to
the manager
Both require a limited amount of data and, if achieved rather than potential risk is
calculated, can nullify (isolate from) the impact of the manager's environment"

705.1. A. FALSE. A difference between logistic regression and the classical linear
regression model (CLRM) is that logistic does not assume constant variance and the
errors are not normally distributed.
De Laurentis: "To focus differences with the classical linear regression, consider that:
In classical linear regression the dependent variable range is not limited and, therefore,
may assume values outside the [0; 1] interval; when dealing with risk, this would be
meaningless. Instead, a logarithmic relation has a dependent variable constrained
between zero and one.
The hypothesis of homoscedasticity of the classical linear model is meaningless in the
case of a dichotomous dependent variable because, in this circumstance, variance is
equal to π*(1-π)
The hypothesis testing of regression parameters is based on the assumptions that errors
in prediction of the dependent variables are distributed similarly to normal curves. But,
when the dependent variable only assumes values equal to zero or one, this assumption
does not hold."

403.2. D. As maturity of debt approaches, as T --> 0, the value of firm debt INCREASES.
As it is a zero-coupon bond, its price increases as is it "pulled to par."
In regard to (A), (B) and (C), each is TRUE.
In regard to (C), in Merton, equity is valued as a call option on the firm's assets; as the
debt's maturity tends to zero, a decrease in firm equity is dynamically equivalent to the
value of a call option decreasing as its maturity shortens (or, in typical language:
European call option value increases with maturity)
We can also apply the "option thinking" to the dynamics of debt. In Merton, the value of
risky debt = risk-free debt - value [European put option on the firm's assets, with strike
price equal to par value of debt]. As maturity tends to zero, the value of the risk-free debt
is increasing; i.e., K*exp(-rT) is decreasing with (T). And, the value of the put is
decreasing; i.e., put option value increases with maturity. Consequently, as maturity
tends to zero (decreases) --> risk-free debt [is increasing] - put value [is decreasing].
From Siddique/Lynch: "The definitions of these exposure measures used in this chapter follow
those in BCBS (2005).
Current exposure is the larger of zero and the market value of a transaction or portfolio
of transactions within a netting set, with a counterparty that would be lost upon the
default of the counterparty, assuming no recovery on the value of those transactions in
bankruptcy. Current exposure is often also called replacement cost.
Peak exposure is a high-percentile (typically 95% or 99%) of the distribution of
exposures at any particular future date before the maturity date of the longest
transaction in the netting set. A peak exposure value is typically generated for many
future dates up until the longest maturity date of transactions in the netting set.
Expected exposure is the mean (average) of the distribution of exposures at any
particular future date before the longest-maturity transaction in the netting set matures.
An expected exposure value is typically generated for many future dates up until the
longest maturity date of transactions in the netting set.
Expected positive exposure (EPE) is the weighted average over time of expected
exposures where the weights are the proportion that an individual expected exposure
represents of the entire time interval. When calculating the minimum capital requirement,
the average is taken over the first year or over the time period of the longest-maturity
contract in the netting set."
Malz:"In practice, hazard rates are usually estimated from the prices of CDS [rather than
bonds]. These have a few advantages:
Standardization. In contrast to most developed-country central governments, private
companies do not issue bonds with the same cash flow structure and the same seniority
in the firm’s capital structure at fixed calendar intervals. For many companies, however,
CDS trading occurs regularly in standardized maturities of 1, 3, 5, 7, and 10 years, with
the five-year point generally the most liquid.
Coverage. The universe of firms on which CDS are issued is large. Markit Partners, the
largest collector and purveyor of CDS data, provides curves on about 2,000 corporate
issuers globally, of which about 800 are domiciled in the United States.
Liquidity. When CDS on a company’s bonds exist, they generally trade more heavily
and with a tighter bid-offer spread than bond issues. The liquidity of CDS with different
maturities usually differs less than that of bonds of a given issuer"