Answers Test 5 Group A/B 2019-2020

1/3 Answer: c
3 x 0,07 – 4 x 0,06 + 1 x RF = 0, so RF = 0,03
3 x b – 4 x 0,3 = 0, so b = 0,4
0,07 = λ0 + 0,4 λ1 & 0,06 = λ0 + 0,3 λ1
So λ0 = 0,03 and λ1 = 0,1, thus RF = 0,03
2/1 Answer: d
0,08 = λ0 + λ1
0,10 = λ0 + λ1+ 2λ2
0,12 = λ0 + 2λ1+ λ2
So, λ0 = 0,05 , λ1 = 0,03 and λ2 = 0,01
thus λ0 + λ2 = 6%
3/2 Answer: b
An arbitrage portfolio does not generate any return.

4/6 Answer: c
a. False, SX = (0,18-0,04)/0,16 = 0,875 > SY = (0,10-0,04)/0,08 = 0,75
b. False, TX = (0,18-0,04)/1,3 = 0,11 < TY = (0,10-0,04)/0,5 = 0,12
c. True, JX = (0,18-0,04)-1,3(0,14-0,04) = 0,01 = JY = (0,10-0,04)-0,5(0,14-0,04) = 0,01
d. False, TMI = (0,14-0,04)/1,0 = 0,10 < TX = 0,11 < TY = 0,12

5/4 Answer: a
a. True, since bP = 0,6x1,0 + 0,6x1,0 – 0,2x0,0 = 1,2 > 1
b. False, since P has unsystematic risk
c. False, it may be true that b1 = b2 = 1, but (U1) ≠ 0 and (U2) ≠ 0
d. False, since P has unsystematic risk

6/5 Answer: d
a. False, since it could be that most sell recommendations follow after recent price
decreases but an investor did not know this beforehand. That is, an investor
could not tell which of the losers would get a sell recommendation. That’s why it
is impossible to construct an active investment strategy which will outperform
the market according to expectations.
b. False, see a. and there is no indication of insider trading
c. False, since CAR = constant means no abnormal returns thereafter
d. True, since they induce a permanent price change