10/4/21, 3:34 PM Quiz1_SAPM

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1151_ECON F412_FIN F313 /
Topic 1 /
Quiz1_SAPM

Started on Monday, 4 October 2021, 3:03 PM

State Finished
Completed on Monday, 4 October 2021, 3:33 PM
Time taken 30 mins 1 sec
Marks 10.50/20.00
Grade 5.25 out of 10.00 (53%)

Question 1 According to CAPM, all stocks in the market would not change as same as the market.
Correct

Mark 0.50 out of Select one:

0.50
a. True 

b. False

The correct answer is: True

Question 2 The internal efficiency is attributed to ____ and the external efficiency is attributed to ____
Correct

Mark 0.50 out of Select one:

0.50
a. Market Price liquidity & Market Risk Free Rate

b. Market Risk Free Rate & Market Information

c. The Transaction Cost & Market Information 

d. Market Information & Market Price liquidity

The correct answer is: The Transaction Cost & Market Information

Question 3 The coefficients on macro factors in a multi-factor APT model are often called
Incorrect

Mark 0.00 out of Select one:

0.50
a. Idiosyncratic Risk

b. Factor Loadings

c. Firm- Specific Risk

d. Systematic Risk 

The correct answer is: Factor Loadings

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Question 4 Inflationary risk is more associated with which of the following investment options?
Correct

Mark 0.50 out of Select one:

0.50
a. Mutual funds

b. Real estate

c. Common stocks

d. Government and Corporate bonds 

The correct answer is: Government and Corporate bonds

Question 5 According to EMH, Market prices can at times deviate from the securities’ true value, but these deviations are completely
Correct ____ and ____
Mark 0.50 out of
0.50 Select one:
a. Both A and C

b. Non-random and auto-correlated

c. Both B and C

d. Random and auto-correlated

e. Random and uncorrelated 

The correct answer is: Random and uncorrelated

Question 6 When beta increases, the avoidable risk

Correct

Mark 0.50 out of Select one:

0.50
a. Decreases

b. Falls after certain point

c. Increases

d. Will have no effect 

The correct answer is: Will have no effect

Question 7 The risk-free security has a beta equal to ____ , while the market portfolio's beta is equal to ____
Correct

Mark 0.50 out of Select one:

0.50
a. less than zero; more than zero.

b. zero; one. 

c. one; more than one.

d. one; less than one.

The correct answer is: zero; one.

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Question 8 EMH states that no single investor can beat the market.
Correct

Mark 0.50 out of Select one:

0.50
a. True 

b. False

The correct answer is: True

Question 9 The markets in which new securities are issued by corporations to raise funds are termed as
Correct

Mark 0.50 out of Select one:

0.50
a. Stock Market

b. Commodity Market

c. Secondary Market

d. Primary Market 

The correct answer is: Primary Market

Question 10 GM is considered superior measure compared to AM in measuring the

Correct

Mark 0.50 out of Select one:

0.50
a. asset’s short term performance.

b. asset’s long term performance. 

c. asset’s short sale performance.

d. Both short and long term performance of assets.

The correct answer is: asset’s long term performance.

Question 11 The major advantage of APT over CAPM is that

Incorrect

Mark 0.00 out of Select one:

0.50
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 does not require a specific benchmark market portfolio and that risk need not be considered.

The correct answer is: that the model does not require a specific benchmark market portfolio.

Question 12 If an investor short sales and incurs a loss due to the rise in the price, that loss will be
Correct

Mark 0.50 out of Select one:

0.50
a. none of the above.

b. equivalent to the face value of stocks

c. unlimited 

d. equal to the the margin plus interest rate.

The correct answer is: unlimited

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Question 13 The beta of the aggressive common stock will be

Correct

Mark 0.50 out of Select one:

0.50
a. less than one.

b. greater than one. 

c. equal to one.

d. equal to zero.

The correct answer is: greater than one.

Question 14 In APT, as the number of securities ‘n’ in a portfolio increases, the value of beta
Incorrect

Mark 0.00 out of Select one:

0.50
a. becomes 1 

b. tends to Zero

c. becomes -1

d. tends to infinity

The correct answer is: tends to Zero

Question 15 The type of risk that can be avoided through a proper diversification is
Correct

Mark 0.50 out of Select one:

0.50
a. unsystematic risk. 

b. total risk.

c. portfolio risk.

d. systematic risk.

The correct answer is: unsystematic risk.

Question 16 Positive expected returns from a zero-investment portfolio arises when

Correct

Mark 0.50 out of Select one:

0.50
a. An investor has downside risk only

b. The law of prices is not violated

c. Risk free arbitrage opportunity exists 

d. Risk free arbitrage opportunity does not exist.

The correct answer is: Risk free arbitrage opportunity exists

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Question 17 The current annual risk-free interest rate is 3 percent, and the expected annual market risk premium is 7 percent. The
Correct company has a debt/equity ratio of 0.2, and the beta for the company's stock is 1.5 while the beta for its debt is 0.4.What
Mark 1.50 out of is the beta for the company’s assets?
1.50

Select one:
A. 1.653

B. 1.317 

C. 1.542

D. 1.456

Your answer is correct.

The correct answer is: 1.317

Question 18 The current annual risk-free interest rate is 3 percent, and the expected annual market risk premium is 7 percent. The
Correct company has a debt/equity ratio of 0.2, and the beta for the company's stock is 1.5 while the beta for its debt is 0.4.Using
Mark 1.50 out of the CAPM, what is the appropriate expected return for the company?
1.50

Select one:
A. 0.242

B. 0.156

C. 0.122 

D. 0.253

Your answer is correct.

The correct answer is: 0.122

Question 19 Prof. Fisher was studying the impact of the Pandemic on the returns of NY based stocks, using the historical data and
Incorrect found the following normal relationship between the returns of two stocks and a market index:
Mark -0.50 out
of 1.50

For the two time periods following the most recent pandemic, he observed the following returns:
t r1t r2t rmt

1 14% 4% 10%
2 -7% -8% -5%

(a)What are the abnormal returns for the stock 1 and 2 for time period t = 1?

Select one:
A. -0.29 & -0.12

B. -0.31 & -0.07 

C. -0.21 & -0.07

D. -0.31 & -0.12

Your answer is incorrect.

The correct answer is: -0.21 & -0.07

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Question 20 Prof. Fisher was studying the impact of the Pandemic on the returns of NY based stocks, using the historical data and
Correct found the following normal relationship between the returns of two stocks and a market index:
Mark 1.50 out of
1.50

For the two time periods following the most recent pandemic, he observed the following returns:

t r1t r2t rmt

1 14% 4% 10%

2 -7% -8% -5%

(b)What are the abnormal returns for the stock 1 and 2 for time period t = 2?

Select one:
A. -0.025 & -0.04

B. -0.015 & -0.07 

C. -0.025 & -0.07

D. -0.015 & -0.04

Your answer is correct.

The correct answer is: -0.015 & -0.07

Question 21 Prof. Fisher was studying the impact of the Pandemic on the returns of NY based stocks, using the historical data and
Not answered found the following normal relationship between the returns of two stocks and a market index:
Marked out of
1.50

For the two time periods following the most recent pandemic, he observed the following returns:

t r1t r2t rmt

1 14% 4% 10%

2 -7% -8% -5%

(c)What are the Average Abnormal returns (AAR) for each time period?

Select one:
A. -0.20 & -0.043

B. -0.14 & -0.043

C. -0.20 & -0.073

D. -0.14 & -0.073

Your answer is incorrect.

The correct answer is: -0.14 & -0.043

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Question 22 Prof. Fisher was studying the impact of the Pandemic on the returns of NY based stocks, using the historical data and
Not answered found the following normal relationship between the returns of two stocks and a market index:
Marked out of
1.50

For the two time periods following the most recent pandemic, he observed the following returns:

t r1t r2t rmt

1 14% 4% 10%

2 -7% -8% -5%

(d)What was the Cumulative Average Abnormal return (CAAR) for the total period?

Select one:
A. -0.242

B. -0.156

C. -0.183

D. -0.253

Your answer is incorrect.

The correct answer is: -0.183

Question 23 Suppose that Qualcomm currently is selling at $40 per share. You buy 600 shares using $15,000 of your own money and
Not answered borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%.
Marked out of a) What is the percentage increase in the net worth of your brokerage account if the price of Qualcomm immediately
1.50
changes to $50? (1 M)

Select one:
A. 7.89%

B. 7.99%

C. 6.67 %

D. 6.99%

Your answer is incorrect.

The correct answer is: 6.67 %

Question 24 Suppose that Qualcomm currently is selling at $40 per share. You buy 600 shares using $15,000 of your own money and
Not answered borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%.
Marked out of b) If the maintenance margin is 25%, how low can Qualcomm’s price fall before you get a margin call?
1.50

Select one:
A. Rs 22

B. Rs 25

C. Rs 27

D. Rs 20

Your answer is incorrect.

The correct answer is: Rs 20

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