Reading 66: International Asset Pricing LOS I: 习题精选 capital, relation, expected, 2010

honeycfa

LOS i: State the risk pricing relation and the formula for the international capital asset pricing model (ICAPM).

The international capital asset pricing model (ICAPM) expresses expected returns as:

A) E(R) = (b × MRP) + (γ1 × FCRP1) + (γ2 × FCRP2) + … + (γk × FCRPk).

B) E(R) = RF + (γ1 × FCRP1) + (γ2 × FCRP2) + … + (γk × FCRPk).

C) E(R) = RF + (b × MRP) + (γ1 × FCRP1) + (γ2 × FCRP2) + … + (γk × FCRPk).

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Where:

E(R) = asset’s expected return

R_F = domestic currency risk-free rate

b_G = sensitivity of the asset i domestic currency returns to changes in the global market portfolio

MRP_G = world market risk premium [E(R_M) – R_F]

E(R_M) = expected return on world market portfolio

γ₁ to γ_k = sensitivities of asset’s domestic currency returns to changes in the value of currencies 1 through k

FCRP₁ to FCRP_k = foreign currency risk premiums on currencies 1 through k

 

E(R) = R_F + (b × MRP) + (γ₁ × FCRP₁) + (γ₂ × FCRP₂) + … + (γ_k × FCRP_k).

The ICAPM tells us that the expected return on any asset i is equal to the investor’s domestic risk-free rate, plus a world market risk premium (which is scaled by the asset’s world market beta), plus a foreign currency risk premium for each foreign currency.

 

[此贴子已经被作者于2010-4-15 15:48:27编辑过]

honeycfa

In a two-currency world, the international capital asset pricing model expresses expected returns as:

A) E(R) = RF + (b × MRP) + (γLC × FCRPLC) + (γFC × FCRPFC).

B) E(R) = RF + (γLC × FCRPLC) + (γFC × FCRPFC).

C) E(R) = RF + (b × MRP) + (γFC × FCRPFC).

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E(R) = R_F + (b × MRP) + (γ_FC × FCRP_FC).

The relevant risk is world market risk. An additional risk premium is added for the asset’s sensitivity to changes in the foreign currency.

honeycfa

Which of the following assumptions is needed to justify the international capital asset pricing model (ICAPM)? In the ICAPM, the risk-free rate is:

A) LIBOR-based, and the market portfolio is the market capitalization weighted portfolio of all risky assets in the world.

B) the investor’s domestic risk-free rate, and the market portfolio is the market capitalization weighted portfolio of all risky assets in the world.

C) the investor’s domestic risk-free rate, and the market portfolio is the market capitalization weighted portfolio of all risky assets in the domestic market.

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In the extended CAPM, the risk-free rate (R_F) is the investor’s domestic risk-free rate and the market portfolio is the market capitalization weighted portfolio of all risky assets in the world.

honeycfa

Which of the following statements related to the International Capital Asset Pricing Model (ICAPM) is least accurate?

A) Expected return for any asset is a function of the U.S. Treasury rate, the world market risk premium, and the sensitivity of the asset to changes in all other foreign currencies.

B) Investors are concerned with nominal returns in their home currency.

C) All investors should hold some combination of their domestic risk-free asset and the world portfolio.

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Expected return for any asset is a function of the investor’s domestic risk-free rate, the world market risk premium, and the sensitivity of the asset to changes in all other foreign currencies. Only if the investor is from the U.S. would he use the U.S. Treasury security.