Reading 51: An Introduction to Asset Pricing Models - LOS assets, white, style

mayanfang1

Q1. when a risk-free asset is combined with a portfolio of risky assets.

The slope of the capital market line (CML) is a measure of the level of:

A)   expected return over the level of inflation.

B)   risk over the level of excess return.

C)   excess return per unit of risk.

Q2. Which of the following is the vertical axis intercept for the Capital Market Line (CML)?

A)   Risk-free rate.

B)   Expected return on the market.

C)   Expected return on the portfolio.

Q3. According to capital market theory, which of the following represents the risky portfolio that should be held by all investors who desire to hold risky assets?

A)   Any point on the efficient frontier and to the left of the point of tangency between the CML and the efficient frontier.

B)   The point of tangency between the capital market line (CML) and the efficient frontier.

C)   Any point on the efficient frontier and to the right of the point of tangency between the CML and the efficient frontier.

Q4. All portfolios on the capital market line are:

A)   unrelated except that they all contain the risk-free asset.

B)   distinct from each other.

C)   perfectly positively correlated.

mayanfang1

答案和详解如下：

Q1. when a risk-free asset is combined with a portfolio of risky assets.

The slope of the capital market line (CML) is a measure of the level of:

A)   expected return over the level of inflation.

B)   risk over the level of excess return.

C)   excess return per unit of risk.

Correct answer is C)

The slope of the CML indicates the excess return (expected return less the risk-free rate) per unit of risk.

Q2. Which of the following is the vertical axis intercept for the Capital Market Line (CML)?

A)   Risk-free rate.

B)   Expected return on the market.

C)   Expected return on the portfolio.

Correct answer is A)

The CML originates on the vertical axis from the point of the risk-free rate.

Q3. According to capital market theory, which of the following represents the risky portfolio that should be held by all investors who desire to hold risky assets?

A)   Any point on the efficient frontier and to the left of the point of tangency between the CML and the efficient frontier.

B)   The point of tangency between the capital market line (CML) and the efficient frontier.

C)   Any point on the efficient frontier and to the right of the point of tangency between the CML and the efficient frontier.

Correct answer is B)

Capital market theory suggests that all investors should invest in the same portfolio of risky assets, and this portfolio is located at the point of tangency of the CML and the efficient frontier of risky assets. Any point below the CML is suboptimal, and points above the CML are not feasible.

Q4. All portfolios on the capital market line are:

A)   unrelated except that they all contain the risk-free asset.

B)   distinct from each other.

C)   perfectly positively correlated.

Correct answer is C)

The introduction of a risk-free asset changes the Markowitz efficient frontier into a straight line. This straight efficient frontier line is called the capital market line (CML). Since the line is straight, the math implies that any two assets falling on this line will be perfectly, positively correlated with each other. Note: When r_a,b = 1, then the equation for risk changes to sport = W_As_A + W_Bs_B, which is a straight line.

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